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¶ … Supply and Demand Determines Market Prices
This paper will explain the meanings of the following terms: supply, demand, market price, equilibrium, and market clearing price. This paper will then go on to explain how supply and demand determines market prices.
A person or company who is selling a product(s) and/or service(s) has a "supply" of products or services. Consumers, the people who are going to purchase the product(s) or service(s), have a "demand," which is a need or want, of the products or services.
An exchange of goods or services will occur whenever consumers and sellers agree on a "price, which is how much something costs. The agreed upon price is call the equilibrium price" (Supply and demand par 1). It is named that...
Another name for equilibrium price is "market clearing price" (par 1).
A market price is not fair to all of who are involved in the market place, because it does not guarantee total satisfaction on the part of both buyer and seller or all buyers and sellers. Satisfaction will depend on their individual competitive positions within the market. Buyers know they are competing with other consumers, so they know if a seller is offering to low a price, the consumer is going to have too much competition (par 3).
On the other side of the coin, sellers want to maximize their profits, but they know if they set the price too high, their competition will beat the price and win consumers. Therefore, there…
So, it is safe to conclude that the higher the supply is, the lower the price is going to be, usually, and the higher the demand of a product or service, the more it is going to cost.
I think this is a wonderful system, here in America, because it allows competition, and competition seems so natural. It gets producers and sellers to work harder and compete with each other, and it gives consumers a wider variety of options. By understanding how supply and demand works, we can use the knowledge to benefit ourselves.
How Supply and Demand Determine Commodities Market Prices. 1995. TradingCharts.com Inc. June 25, 2002. http://www.tfa-charts.w2d.com/learning/supply_and_demand.html
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