No.9905791 ViewReplyOriginalReport
The forces of demand and supply interact in the market. When the two lines cross, we refer to this as equilibrium. At this point, demand exactly equals supply, and so the market has determined the quantity that will be produced and the price for which that good or service will be traded. The market mechanism works because of the principle of consumer sovereignty. This principle states that in any market it is the consumers who ultimately force the direction of production. In a simple manner this is quite easy to understand – if no one buys an item that is produced, then it is probable that the producers will not make any more of that item. On the other hand if an item sells out very quickly, then producers will allocate more of their resources to the production of that item, and therefore a higher quantity will be produced. It is possible that a price in a market will be set too high. When the price is set too high, the market will automatically respond and return to equilibrium.