Alternative Theories
For more details on this topic, see Outline of industrial organization.How prices are set is a key question in the theory of industrial organization. The theory of price signals argues that higher prices reflect either increased consumer demand (thus spurring higher production), or increased producer costs (thus reducing consumption), allowing the coordination of the economy. For example, if a producer charges a fixed percentage markup, then prices reflect costs of production, and changes in price correspond to changes in production, rather than changes in profit.
Read more about this topic: Price Signal
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