Question
Discuss how prices are set in a market system. What is market equilibrium? What is
diseculibrium? How does government intervention affect prices in the market? Do you think the
price system is the best way to allocate goods and services? Why/why not? Write one paragraph
Answer
In a market system, prices are set by the interaction of supply and demand. Market equilibrium occurs when the quantity of goods supplied is equal to the quantity of goods demanded, resulting in a stable price. Disequilibrium occurs when the quantity of goods supplied is not equal to the quantity of goods demanded, resulting in a price that is either too high or too low. Government intervention can affect prices in the market by either increasing or decreasing the supply of goods or by changing the demand for goods. While the price system is an effective way to allocate goods and services, it can be subject to market manipulation and can lead to unequal distribution of resources.