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The concept of `price', is an important variable of economics. In the barter economy, when the price concept was not in existence, goods and services were exchanged with each other. For example two goods whose quantities are x and y, the price of x is the ratio y/x, while the price of y is the ratio x/y. In short, price is the numerical monetary value of a good, service or asset. or the amount of money for which goods and services are bought and sold.

Theory of price asserts that the market price reflects interaction between two opposing considerations. On the one side is demand considerations based on marginal utility, while on the other side are supply considerations based on marginal cost. An equilibrium price is supposed to be at once equal to marginal utility (counted in units of income) from the buyer's side and marginal cost from the seller's side. Though this view is accepted by almost every economist, and it constitutes the core of mainstream economics. The relationship between price and demand is measured by price elasticity. Price elasticity can be derived by following formula, price elasticity of demand = % change in the demand / % change in the price. If demand changes by more than the price has changed, the good is price-elastic. If demand changes by less than the price, it is price-inelastic. The idea of the price elasticity provides important information to a firm that how an increase in price will affect the total revenue of the firm. If the price elasticity of demand is less than one, then an increase in price will cause the total revenue to increase. However, if the price elasticity of demand is greater than one, then an increase in price will cause the total revenue to decrease. Similarly, the price elasticity of supply measures the responsiveness of supply to a given change in price.
In economics we also discuss price mechanism, the process by which markets set price. It depends on the amount of competition the market. Under perfect competition, all firms are price takers. While in monopoly market, firms have some power to decide the price and the seller has some control over the price, which will be higher than the perfectly competitive market. According to change in price firms and consumers shows their economic behavior. For example a rise in price encourages firms to increase their supply but on the other hand consumers try to find an alternative substitute product. For some products, firm may adopt the policy of price discrimination. In price discrimination same product is sold in different markets for different prices. A firm will only be able to price discriminate where there is separation between the markets. If there is any significant leakage between the markets the price discrimination will break down.

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