Question

Why do you think it is important that prices are flexible in our economy? Do you think they reflect the true price of what buyers and sellers are asking in the market? Also, identify one product that has changed in price and identify if it is a determinant of supply or demand to explain the price change that has occurred.

Answer 1

Price flexibility is important in our economy for maintaining the law of demand and supply. It is healthy for the sustainability of the people in the economic as well as the other main players in it. When there is surplus in the supply, the firms will reduce production and mark down a price and as result it allows the surplus to diminish, and it reduces the price. The opposite is also true. The sellers want to get the highest price for their commodity and buyers want to purchase that same product as cheaply as possible. Thus the price flexibility allows for both sided to come to an equitable deal for both the consumer and producer; and in my opinion my this way it depicts the true price of what buyers and sellers are asking in the market. For example: If the imposition of government regulations there will be a decrease in supply of sugar; and as a result the price of sugar will increase. Since government regulation is a determinant of supply thus the change in price due to it.