1.2.6 Price determination

Question 1

What is a market?

Answer 1

Any place which brings buyers and sellers together.

They can be physical (e.g. Waterstones) or virtual (e.g. eBay)

Question 2

How is price determined in the market?

Answer 2

• Buyers agree the price by purchasing the good/service.
• If they do not agree on the price then they do not purchase the good/service.
  This encourages sellers to adjust their prices until an equilibrium price is reached.

Question 3

At the equilibrium price, what happens?

Answer 3

Demand = Supply

At this point the price is called the market clearing price. This is the price at which demand of buyers equals the supply of sellers in the market.