"Who sets prices?" I´m often asked.
"No one, scarcity determines price." I reply.
I´m usually met by a look of disbelief and the conversation goes no farther. Firewood in a forest doesn´t cost anything because anyone can pick it up. Something from China is pretty scarce and so it costs a lot. A merchant will not bear the cost and hazard of bringing something from China if no one is willing to pay a high price for it. Sometimes an item suddenly becomes more scarce because of a storm, pirates, or war. It would be nice if merchants would voluntarily make a greater effort to supply more of the scarce item. It would be nice if many would voluntarily refrain from buying so that those most in need can acquire the items. The government and the church can appeal to everyone to act that way. Appeals for voluntary action doesn´t work. The item remains scarce. Raising the price provides an incentive for merchants to supply more of the item. The higher price will persuade some not to purchase. Some don´t like a merchant making a windfall profit from some item suddenly becoming more scarce. I say: "So what? Their actions accomplish what´s important." If the price rises too much, merchants will have more on hand than they can sell, so they lower the price until balance is achieved.