The price listed for a can of soup or a simple red sweater fluctuates over time. The causes of these price fluctuations are rooted in economic theories of supply and demand. However, the market value of an item can change instantaneously: In a perfectly-competitive society, prices are never consistent. The fluctuation in prices can benefit consumers and sellers, while in other cases, it can harm both parties.
Identification
Economic market value is the price of a good and service, which, in a capitalist economy, is determined by the free market. The free market consists of suppliers purveying products at a given price and consumers willing to pay a certain value for these items. When there is a match between what consumers are willing to spend and what buyers are willing to sell, this price point is the economic market value. Economists express this value graphically as the intersection between the upward-sloping supply line and the downward-sloping demand line.
Changes in Market Value
The value of an item changes for many reasons. When an item becomes scarce due to shortages, whether it's a limited edition or a natural disaster affects its production, its market value increases. This is why, for example, fruit out of season is more expensive: It is rare and its supply is limited. The decreases when more competitors offer a similar product. Competition drives down prices because more goods are introduced into the market. If demand remains the same, businesses must lower prices to attract consumers.
Government Intervention
In some cases, the government interferes with the natural equilibrium of supply and demand by implementing price floors and price ceilings. A price ceiling occurs when the government prohibits sellers from purveying a product above a certain price. Harvard economics professor Gregory Mankiw gives the example of rent control in New York as an instance of a price ceiling: this type of price controls creates shortages and a disincentive to retain the item's quality. A price floor is a government mandate not to sell a product below a certain value. Price floors create surpluses because sellers are unable to attract enough customers by lowering the price beyond a certain point. In most cases, consumers and sellers lose from these types of price controls.
Considerations
Globalization has created significant fluctuations in economic market value. In most cases, globalization has reduced the price at which companies list goods and services. This is because outsourcing drives down the cost of production, thereby enabling firms to pass along this price savings to consumers. However, demand for the product shifts as well: Unless workers displaced by outsourcing find a job of comparable pay, they do not have a wage with which to purchase the good.
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