Tuesday, July 31, 2012

Class XI, Principles of Economics, "Market Price"

Market Price

Market price is the actual price that prevails in the market at any particular time. It never remains constant. It changes from day to day and even from moment to moment. It can change at any time at any moment.
Determination of Market Price
Market price is determined by the relative forces of demand and supply. The demand depends upon the satisfaction, which a consumer drives from the consumption of the commodity. Supply on the other hand depends upon the cost of production of the commodity. The consumer tries to achieve more and more satisfaction least possible expenditure. He does not pay more than the marginal utility of the commodity to him the seller on the other hand tries to maximize his profit by changing as much as he can. He will never accept the price which is less than the marginal cost of production of the commodity and thus marginal utility and marginal cost pf production are the two limits the maximum and the minimum and price is determined between these two limits, so we can say that,
“The price is determined at point where the amounts demanded and offered for sale are equal.”

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