How are prices set in a capitalistic economy? When price hikes occur, what are the reasons and how would you expect the market to respond?

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In a capitalistic economy prices are primarily determined by the interaction of supply and demand within competitive markets Heres how prices are typically set 1 Supply and Demand Prices are influenced by the forces of supply and demand When the demand for a good or service increases relative to its supply prices tend to rise Conversely when supply exceeds demand prices tend to fall This interaction is often visualized through the supply and demand curve where the equilibrium point represents the price at which quantity supplied equals quantity demanded 2 Competition In competitive markets firms compete with each other to attract consumers Competition among sellers helps ensure that prices remain relatively low and reflect the costs of production 3 Cost of Production The cost of producing goods or services also plays a role in determining prices Firms typically set prices to cover their production costs and earn a profit Factors such as labor raw materials technology and taxes can all influence ... View the full answer