Competitive markets find a balance in prices through the interaction of supply and demand. Let’s break it down step by step:
Demand Goes Up: When more people want a product, the demand increases. This causes prices to go up.
Producers React: When prices rise, producers see an opportunity to make more money. They decide to make more of the product, which increases the supply.
Finding Equilibrium: Eventually, the supply matches the demand at a new price. This is how balance is reached.
For instance, if everybody suddenly wants the latest smartphone, the prices will go up. This prompts manufacturers to make more smartphones until the market finds its balance again.
Competitive markets find a balance in prices through the interaction of supply and demand. Let’s break it down step by step:
Demand Goes Up: When more people want a product, the demand increases. This causes prices to go up.
Producers React: When prices rise, producers see an opportunity to make more money. They decide to make more of the product, which increases the supply.
Finding Equilibrium: Eventually, the supply matches the demand at a new price. This is how balance is reached.
For instance, if everybody suddenly wants the latest smartphone, the prices will go up. This prompts manufacturers to make more smartphones until the market finds its balance again.