What is a reason that market prices are not always the same as equilibrium prices?
(1 point)
Responses
Market prices are often set by buyers rather than by sellers.
Supply and demand are not well-understood by business owners.
The equilibrium is not always the most profitable price point.
It is not always practical for businesses to change their prices on a daily basis in order to reflect the equilibrium price.
It is not always practical for businesses to change their prices on a daily basis in order to reflect the equilibrium price.
The correct response is:
It is not always practical for businesses to change their prices on a daily basis in order to reflect the equilibrium price.
The correct answer is: It is not always practical for businesses to change their prices on a daily basis in order to reflect the equilibrium price.
Explanation:
Market prices are determined by various factors such as supply, demand, cost of production, and competition. In a perfectly competitive market, the equilibrium price is the point at which the quantity demanded by buyers matches the quantity supplied by sellers. However, in real-world scenarios, achieving this equilibrium may not always be practical or feasible.
One reason market prices may not always align with equilibrium prices is the difficulty businesses face in adjusting their prices continuously to match the changing market conditions. Changing prices frequently can be a time-consuming and costly task, requiring businesses to constantly monitor and adjust their prices. This process may involve additional administrative efforts, pricing strategies, consumer perception, and competitive factors that can make it challenging for businesses to align their prices precisely with the equilibrium point.
Furthermore, market prices may also be influenced by other factors such as market power, monopolies, imperfect information, government regulations, or external shocks like natural disasters or global economic events. These factors can lead to market prices deviating from the equilibrium price, resulting in prices that may be higher or lower than what would be expected in a perfectly competitive market.
In summary, while equilibrium prices serve as an important benchmark in economic theory, various practical constraints and market dynamics can cause actual market prices to differ from the ideal equilibrium price.