Buyers and sellers take the market price as given when making purchasing or production decisions.

Question

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In a market economy, the price of a good or service is determined by supply and demand. Both buyers and sellers must take the market price as given when deciding how much to buy or sell. Buyers will only purchase a good if they believe the price is lower than the value they place on the good, while sellers will only produce a good if they believe the price is higher than the cost of production. Therefore, the market price plays a crucial role in the decisions made by both buyers and sellers. Buyers and sellers in a market economy operate under the assumption that the market price, determined by supply and demand factors, is fixed and cannot be influenced by individual decisions. This is known as the price-taking behavior. Therefore, they adjust their purchasing or production decisions based on this given market price.

Buyers and Sellers Take the Market Price as Given When