Price System:

Price is the monetary value of a commodity. It is the amount of money one exchanges for a commodity. In the free market system, the price of a commodity is determined by the interaction of the forces of market demand (the collective actions of buyers) and market supply (the collective actions of sellers). The process by which the market forces of demand and supply interact to fix the price of a commodity is referred to as the price mechanism. The market mechanism is the process by which the market forces of demand and supply interact to fix price and the quantity of a commodity. We will take the market forces of demand and supply one by one and explain them and further show how they interact to fix the price of a commodity.