Role of Price on the Demand and Supply Model
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Describe the role of price on the demand and supply model.
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Solution Summary
The solution describes what role price has in the classic economic model of supply and demand.
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Price serves as the motivation or obstacle for creating supply and demand.
On the supply side, if a firm predicts that the market will pay a high price for a particular product, it has additional motivation for creating and selling the product because there is sufficient margin between cost to produce and market price that the firm can expect to make a decent profit. On the other hand, if the market is willing to ...
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