What is the function of price in a free market economy?

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Price functions as a reflection of supply and demand in a free market economy. For example, if you want to buy a pack of gum, and there are lots of packs of gum available, the price will remain low, because there are plenty of packs of gum available to satisfy demand for the product. However, if there were suddenly a gum shortage and many people wanted to buy gum but could not find it, the price of the remaining packages of gum would go up.

In addition, price influences supply and demand in a market economy. If a seller sets the price of a product too high, demand for the product will be low because no one will want to pay the price for the product. There will be too much product remaining, and the seller will need to reduce the price. If a seller sets the price of a product too low, the demand will be too high, and the product will sell quickly. In order to capitalize on the increased demand for the product, the seller will need to raise the price.

The constant shifting of price as a...

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