BU204: Macroeconomics

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oznl1822

Economics

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Why supply and demand is considered as factors that make market economies work? 

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The interaction between market demand and supply determines the equilibrium or market price (where demand equals supply). Shifts in the demand curve and/or the supply curve lead to changes in the equilibrium price. The market price and the price mechanism play crucial roles in the capitalist system—they send signals to both producers and consumers. The price mechanism is an integral part of the study of market structures that constitute the bulk of microeconomic theory.

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