Supply and demand coordinate to determine prices by working

Supply and demand coordinate to determine prices by working

1) together.

2) competitively.

3) with other factors.

4) separately.

Answer: 2. competitively

The market prices are determined by the supply and demand in a competitive way. Supply is the quantity of a product that suppliers are ready and able to sell at any given price level. Demand is the number of a good or service that consumers are ready and able to buy at a price.

If supply is more than demand, we have a surplus situation in the market. Under the condition of overproduction, producers have to compete for selling their products by decreasing prices. Consumers therefore become motivated to buy more because of this reduction in prices. On the other hand, when demand is increased while supply decreased then there occurs an excess demand or shortage. To compete for the scarce supply, consumers must offer higher prices. High prices stimulate producers to produce more.

This process of dynamic adjustment brings prices to the point at which quantity supplied equals that demanded. When the equilibrium price is reached, consumers’ demand and producers’ supply are equal. If prices move away from the equilibrium, competitive market forces of supply and demand force them towards this level. As such, the competition between supply and demand shapes market prices as producers strive to achieve profit maximization while consumers seek to acquire utility or levels of satisfaction.