Price Theory

Price Theory Assignment Help

Price Theory

Price is the value of a goods or service expressed in units of money; it is the amount of money paid for purchasing a unit of a commodity. Price because the goods has utility for them. Producers charge price because cost is involved in producing that goods. Both consumers and producers come to the market to buy and sell. How much all consumers are willing to buy at a given price forms the market demand. How much producers are willing to sell at a given price constitutes supply. The market price is determined at a level where demand and supply are equal. In diagrammatic presentation, the price is determined at a level where negatively sloped demand curve and positively sloped supply curve intersect. This point of intersection is called point of equilibrium and the corresponding price there is excess demand that exerts upward pressure and raises it.

Given the supply curve, any increase in demand and the consequent rightward shift in demand curve will cause a rise in price. Decrease in demand will have the opposite effect. Given the demand curve, an increase in supply and the rightward shift in supply curve will cause a fall in price. Decrease in supply and the leftward shift in supply curve will lead to a rise in price. When both the demand and supply curves shift, the resulting price will be determined by the intersection of the new demand and new supply curve.


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