How the price system works

The Price system is in constantly changing interrelationships of costs of production, prices and profits.

Nowadays, prices are fixed trough the relationships or supply and demand. People tend to offer more when they want more, so the prices rise, because the people want it more.

This phenomenon also increases the profits of the ones who are making the article, because no it is more profitable than other articles. This increased supply then reduces the price and reduces the profit margin, until it once more falls to the general level of profits in other industries. Therefore, producers offer more for costumers and no vice versa.

This process is the origin of the belief that prices are determined by costs of production, but it’s not true. Prices are determined by supply and demand. Demand it’s determined by how intensely people want something.

·         Supply is determined by producers.

·         The more demand, the more profits. The more profits, the more production. And more production, the quality increases. This increases the supply of the product but reduce the supply of other commodities.

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