When buyers and sellers come into a market, each buyer has in mind the maximum price he will pay for a good, while each seller, on his part, has determined on a minimum price. Provided nothing occurs to change these determinations, no exchange will take place unless the maximum price of the buyer is equal to, or greater than, the minimum price of the seller. Here, then, is the most fundamental notion in the determination of market price.

In determining a maximum price the buyer estimates the marginal utility of the good he desires, measuring it by comparing the satisfaction which this good will yield with the satisfaction yielded by some other good or goods of the same price. If he desire more than one unit of the good, the marginal utility will ordinarily be lower than if he desired but one unit. The seller's problem of determining a minimum price is a much simpler matter. Whereas the buyer's determination is largely an estimate, often, as we have seen, wholly disproportionate to his wealth, the seller's determination is, except under extraordinary circumstances, fixed for him by the expense he has incurred in procuring the good. The prospective buyer of a suit of clothing, for example, can, at the best, have but a hazy notion of the maximum price he will pay for a particular suit. The merchant, on the other hand, knows almost exactly the minimum price he can accept for it without suffering a loss.