Answer to Question #128109 in Microeconomics for SHUKTIJ MISHRA

Question

Is the market economy truly an economy where the market forces set the price?If the prices of most goods bought and sold are already fixed(MRP) then how can we say that the prices are determined by the market forces?

Answer 1

Market economy is a system which decision is made by the economy and the cost of the products are set by the way the citizens of a country and business interact. The cost of goods and services depends on the supply and demands.

If the customers acquire the products then the manufacture has to supply more so as to meet the demands. When the quality of supply is equal to the quantity of demands, then the prices in market will have reached equilibrium. In other cases the customers can find that products are brought to the market with their prices fixed and therefore the market forces are not imposed.

In this case the government has to intervene so that the customers don't suffer under a hard situation of acquiring products. Since the products might have fixed price, at the same time set to be high .The reason to fixed price might be because the demand is high and the supply from producers is low.