The Theory of Price

The Theory of Price explains how the value of goods and services is determined in a market economy. Prices are influenced by supply (how much of a product is available) and demand (how much people want it). When demand is higher than supply, prices tend to rise. Conversely, if supply exceeds demand, prices usually fall. This interplay helps allocate resources efficiently, guiding producers on what to make and consumers on what to buy, ultimately balancing the market over time. Price changes reflect the shifting preferences and availability of products in society.