Question

what is theory of price determinatuin

Answer 1

Theory of price consists of theory of product pricing and factor pricing. The theory of product pricing explains how the prices of goods are determined in the market. For this, it is important to study demand and supply in the market. The demand is studied by studying the consumer behaviour and the supply is studied by studying the cost and production behaviour of the firm. In theory of factor pricing, factor refers to the factors of production such as land, labour, capital and entrepreneur. The theory explains how the prices of these factors of production are determined in the factor market. Factor prices are classified into rent, wages, interest and profits. 

Answer 2

Price determination is an economic activity determined under the principle of demand and supply.Under the demand,we look at the market demand for the goods and services at their prevailing market prices.Under the supply we deal with the factors of production like land,labor,capital and other inputs that can produce a required commodities and services.This is determined through the cost of producing these products.Price is determined according to the cost of factors of production and the market price for the produced goods and services.