The theory of price — a foundational concept in microeconomics — explains how the prices of goods, services, and financial assets are determined through the interaction of supply and demand forces in a marketplace. At its core, the theory holds that in a competitive market, prices adjust until the quantity demanded by buyers equals the quantity supplied by sellers — reaching an equilibrium price that clears the market. Price changes signal information to producers and consumers: rising prices incentivise greater supply and reduced demand; falling prices do the reverse. Extensions of the theory address price determination under different market structures (perfect competition, monopoly, oligopoly), the role of price elasticity, and how externalities, taxes, and subsidies distort market prices from their free-market equilibrium. For investors and analysts on Ventura Securities, the theory of price underpins the fundamental analysis of commodity markets, sector pricing power assessment, and the evaluation of whether a stock's current market price accurately reflects its intrinsic value based on the supply and demand for the underlying business's earnings and assets.
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