Question

What determines the level of prices in a market?

Short answer

Market demand and market supply.

Step-by-step solution

Step1. Introduction

Demand in a market refers to the consumers' willingness and the ability to buy goods and services at given price.

Likewise, supply in a market refers to the producers' willingness and ability to sell goods and services at a given price.

Step2. Explanation

Interaction of market forces of demand and supply leads to price determination.

The point of intersection of downward sloping demand curve and the upward sloping supply curve is referred to as the equilibrium point.

The price corresponding to this equilibrium point is the equilibrium price.