MD 3 Study Qs.docx - Chapter 7 1. Price changes more...

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Chapter 71.Price changes more frequently in a price discovery system rather than a price-settingsystem. In a price discovery system, price change is dependent on the certain commoditybeing sold. So, there is a different change per product. This system also does not permitmarket conditions to be able to be manipulated by group price setting. Price discoveryoccurs when market participators, or buyers and sellers, are individually price takers ornegotiators. Price discovery also typically never involves differentiated products and areassociated with fairly equal numbers of buyers and sellers. So, with all of this freedomand lack of regulation, price changes are common with these type of non-differentiatedproducts.5.Regardless of the many factors that effect this system, demand and supply happen to bethe most effective. Prices in a price-setting system are extremely dependent on supplyand demand. If the supply of a product is extra, the prices will inevitably decrease so thatthe consumers will purchase more. If the supply is below the demand, the prices will beincreased so that the suppliers can catch up on how much is being demanded (producingmore). In the long run, all prices will be back at equilibrium once the suppliers meet

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Term
Spring
Professor
Dharmasena

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