Question

Do businesses always set their price to the market price?

Answer 1

The market price refers to current price at which a good or service can be purchased or sold. The economic theory states that the market price converges at a point where the forces of demand and supply intersect. When the price is set below the equilibrium level, then the quantity demanded will be more than the quantity supplied thus creating supply shortage or excess demand. Similarly it is a vice-a-versa; thus a business will set the price equal to the market price. However it government set a price ceiling or price floor it can be set over and above the market price