Chapter 5

Indicators of Price Levels

Prices of goods and services change. Sometimes the cause of the change is a temporary imbalance between supply and demand. When there is excess demand relative to supply, there is an upward pressure on the market price, and when supply exceeds demand there is a downward pressure on price. Since prices must be sufficiently high to cover costs for a business to sustain its operations, but not so high as to lose business to competitors, the price a firm will charge is affected by changes in the prices it must pay to acquire the labor, raw materials, energy, and other resources needed to provide its product or service. Consequently, price changes in one sector of the economy spill over to other sectors. Further, ...

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