Which economic concept refers to the interaction between sellers and buyers in determining prices?

The correct answer is the relationship between supply and demand, which fundamentally describes how sellers and buyers interact in the marketplace to establish prices. In this context, supply refers to how much of a product or service is available for sale at various price levels, while demand indicates how much of that product or service consumers are willing to buy at those same price levels.

When the quantity supplied equals the quantity demanded at a particular price, the market reaches a state known as equilibrium. Changes in either supply or demand can lead to shifts in prices, showcasing the dynamic nature of this relationship. For instance, if demand increases while supply remains constant, prices tend to rise as buyers compete for the limited goods. Conversely, if supply exceeds demand, prices typically fall. Thus, understanding the principles of supply and demand is crucial for analyzing how prices are determined in the market.

Market equilibrium specifically addresses the point where supply and demand meet but doesn't encompass the broader interactions. Price elasticity measures how responsive the quantity demanded or supplied is to a change in price, and consumer choice relates to how individuals decide among various options, neither of which directly focuses on the foundational interaction between sellers and buyers.