Determinations of prices in the market are based on many factors; and they are as follows:
• Price Mechanism
• Factor of production
• By Geography
• By Time
Price mechanism would involve the market forces; demand and supply. The prices for the fishery products are determined depending on the demand the products have in the market. In the market system, resources are allocated by the price mechanism. The price will adjust to equate supply and demand.
➢ An Increase in Demand
The price acts as a rationing device, a signal and incentive. If demand for a product increases, for example, this would lead to excess demand at the old price. The price would rise reducing the quantity demanded, encouraging existing firms to produce more (incentive) and encouraging other firms to join the industry (signal). This brings resources into this industry and out of another.
➢ An Increase in Supply
With an increase in supply the supply curve shifts to the right. At the old equilibrium price (P0) there is excess supply. The price will fall, increasing the quantity demanded and decreasing the quantity supplied. The price falls until it reaches the new equilibrium at P1Q1.
➢ Macro Economic Equilibrium
Equilibrium occurs when the quantity supplied equals the quantity demanded and there is no incentive for change; i.e. there is a state of rest. This occurs at P0Q0; where price and quantity are balanced; the equilibrium price is P0.
If the price is above the equilibrium price; (that is P1), there would be excess supply; the quantity supplied is greater than the quantity demanded and therefore the price would fall. As it does this the quantity demanded will increase and the quantity supplied will fall. This would continue till the quantity supplied equals the quantity demanded and the equilibrium is reached.
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