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Dima020 [189]
3 years ago
12

Who determine the price of goods and services?

Social Studies
1 answer:
ollegr [7]3 years ago
3 0

Well, there are many economic agents whose influence can affect significantly prices.

First, the basic, supply and demand, if any other factors meddle with the market dynamics they will settle the price. Prices will change till supply and demand find an equilibrium. If demand is too high, prices will rise for a fixed level of product till people stop wanting the product or it gets profitable enough that new firms will want to enter the market and absorb part of those gains. The same applys for too much supply, prices will fall.

Second, is this a competitive market or is it a monopoly/oligopoly? Firms in the latter will have more market power tending to rise prices above the expected value in a competitive market, their mark-up will be higher.

Third, those firms will have suppliers themselves and get affected by regulation, taxes and many other economic forces.

Forth, what is the price elasticity of the consumers in this sector? This means, if the firm impose higher prices will demand drop fast or slow, is it an essential good (Medicine, fuel, etc.)?

Fifth, do consumers know about what they are buying? Is there assimetric information, time-inconsistent preferences?

Those are SOME of the factors, there are many other cases and scenarios, but they all share a characteristic, they are all microeconomic phenomena, if you which to know more about it I would recommend Hal Varian Microeconomics book is a good entry-level book, focused more on concepts and meanings than the math behind those economic models.

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