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Chapter 3: Q. 12 (page 78)

What determines the level of prices in a market?

Short Answer

Expert verified

Market demand and market supply.

Step by step solution

01

Step1. Introduction

Demand in a market refers to the consumers' willingness and the ability to buy goods and services at given price.

Likewise, supply in a market refers to the producers' willingness and ability to sell goods and services at a given price.

02

Step2. Explanation

Interaction of market forces of demand and supply leads to price determination.

The point of intersection of downward sloping demand curve and the upward sloping supply curve is referred to as the equilibrium point.

The price corresponding to this equilibrium point is the equilibrium price.

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Most popular questions from this chapter

Does a price ceiling increase or decrease the number of transactions in a market? Why? What about a price floor?

What is total surplus? How is it illustrated on a

demand and supply diagram?

What would be the impact of imposing a price floor below the equilibrium price?

Suppose both of these events took place at the same time. Combine your analyses of the impacts of the iPod and the tariff reduction to determine the likely impact on the equilibrium price and quantity of Sony Walkman-type products. Show your answer graphically.

When the price is above the equilibrium, explain

how market forces move the market price to

equilibrium. Do the same when the price is below the

equilibrium.
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