How Are Prices Determined in a Free Market Economy?

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Prices are determined in a free market economy through the interactions of supply and demand in the marketplace, where demand is the quantity of a product that buyers are willing to purchase according to a given price and supply is the amount of a product that sellers can vendor to customers at a given price. In various market economy theories, price plays an essential role in how sellers determine their prices and buyers act on those prices. Supply and demand are important factors to consider as stakeholders will always try to find the best allocation of their resources.

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