Introduction to Austrian Economic Analysis

3. The Determination of Prices

06/14/2006 Joseph T. Salerno

What principles determine the formation of prices on the free market? The equilibrium price between supply and demand determines prices according to the value scales of sellers and buyers and their elastic or inelastic positions.

As the price increases, new suppliers with higher minimum selling prices are brought into the market, while demanders with low minimum buying prices will begin to drop out. As the price decreases, the quantity demanded must always either remain the same or increase, never decrease.

It is clearly fallacious to believe, as has been the popular assumption, that utility and costs are equally and independently potent in determining price.

The third of ten lectures from Joseph Salerno's Introduction to Austrian Economic Analysis seminar.

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