Question

In a market economy,a. supply determines demand and demand, in turn, determines prices.b. demand determines supply and supply, in turn, determines prices.c. the allocation of scarce resources determines prices and prices, in turn, determine supply and demand.d. supply and demand determine prices and prices, in turn, allocate the economy's scarce resources

Answer 1

In a market economy, supply and demand determine prices and prices, in turn, allocate the economy's scarce resources.

Supply and demand are the driving forces of prices in our economy. If there is a high demand the prices will reflect and likewise if the opposite. Understanding this concept helps us to determine why certain items are priced at the price point they are.