6. How do prices in the market determine the answer of basic economic questions?

Price: unit of money or other kind of goods paid for a unit of product. Price plays an important role in the buying and selling process. It helps to determine answer of basic economic questions: what, how and for whom to produce.

Q1: what to produce

- price increases, producers will try to produce more to increase their profit. Other people will also be attracted to the business to gain profits.

- price decreases, producers minimize their production or change to produce other kinds of goods.

Q2: how to produce

Producers compete => attract more consumers which will reduce the product price. So, their production will become more efficient. That is a good way to save raw materials, reduce production cost.

Q3: for whom to produce. When trading products, producers and sellers set the price

- if too high, few consumers can afford => hard for them to sell out their products or gain as much profits as expected.

- if too low, a lot of people afford => worry about the quality of the product. That’s why producers and sellers have to find out the price that can satisfy both consumers and them.

Conclusion