The United States is a market economy. In a market economy, individuals and businesses are free to make their own economic decisions. Consumers can decide what to buy, and businesses can decide what to produce.
Although businesses set their own prices, consumers help determine the prices based on what they are willing to pay. This relates to the concept of supply and demand. The law of supply and demand states that the price of a product is determined by the relationship between the supply of the product and the demand for the product.
Supply is the quantity of goods and services available for purchase at a specific time and specific price. If the supply is low, the price will usually be high. If the supply is high, the price will usually be low.
Demand is the quantity of goods and services that consumers want to purchase. Higher demand often results in higher prices, and lower demand results in lower prices.
Supply and demand help businesses set prices for their products and determine when price changes are needed. Prices can have an impact on profit, so the law of supply and demand is critical to the success of a business.