Which of the following is typically the first step in determining the price of a good or service in a market economy?

• A. Setting the price based on competitors
• B. Calculating the profit margin
• C. Identifying the demand for the product
• D. Estimating advertising costs

Answer: (C)

Verified step by step guidance

1. Understand that in a market economy, the price of a good or service is primarily influenced by the interaction of supply and demand.
2. Recognize that the first step in determining the price is to identify the demand for the product, which involves understanding how much consumers are willing and able to buy at different price levels.
3. Analyze the demand curve, which shows the relationship between price and quantity demanded, to see how changes in price affect consumer behavior.
4. After establishing demand, consider the supply side and competitors' prices to understand the market context and constraints.
5. Finally, use this information to set a price that balances consumer willingness to pay with production costs and competitive factors.