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Chapter 3: Q 12. (page 78)

What determines the level of prices in a market?

Short Answer

Expert verified

Demand and supply determine the level of prices in a market.

Step by step solution

01

Step 1. Define price.

The price of a product is the amount of money that must be spent to obtain it.

02

Step 2. What factors influence a market's pricing level?

The junction between demand and supply in a market determines market prices. The ability and willingness of a person to purchase products and services at a certain price is referred to as demand. The ability and willingness of a producer to supply items at a certain price is referred to as supply. Demand and supply work together to establish the price at which goods are bought and sold in a market.

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Most popular questions from this chapter

If a price floor benefits producers, why does a price floor reduce social surplus?

A tariff is a tax on imported goods. Suppose the U.S. government cuts the tariff on imported flat screen televisions. Using the four-step analysis, how do you think the tariff reduction will affect the equilibrium price and quantity of flat screen TVs?

How can you locate the equilibrium point on a demand and supply graph?

We know that a change in the price of a product causes a movement along the demand curve. Suppose consumers believe that prices will be rising in the future. How will that affect demand for the product in the present? Can you show this graphically?

Let's think about the market for air travel. From August 2014 to January 2015, the price of jet fuel increased roughly 47%. Using the four-step analysis, how do you think this fuel price increase affected the equilibrium price and quantity of air travel?
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