Market Prices
In an isolated act of barter, each party considers the degree to which it values the goods offered by the other in deciding what is a fair price, and the negotiation between them is guided by their independent judgments.
In a market situation, where there are many buyers and many sellers, negotiation is influenced by the judgments of other men. A buyer who is aware that some butchers accept two pieces of silver for a pound of meat considers that to be a fair exchange not because of the effort he put into earning the silver, but because of the prices that others have paid. There is no sense offering more to a particular supplier if the same good can be had more cheaply from another.
The seller, meanwhile, knowing that other buyers have offered two pieces of silver for a pound of meat also considers that to be a fair exchange rate, not because of the amount of labor to produce the meat but because of the prices others have gotten. There is no sense in accepting less of a customer if a better price is offered by another.
Supply and demand also impact market prices: if few people are buying a good, sellers lower their price to attract buyers; and if there are many buyers, sellers can raise their price. Those who offer perishable goods, such as meat, are under greater pressure than those who offer durable goods, because their product cannot be set aside for trade on another day.
While seemingly chaotic, there can be no more convenient or effective way to apportion to supply of goods to those who demand them, in proportion to the direness of their want. There is a great deal of fluctuation in market prices of goods, and a sense of instability, but so long as sellers are paid enough to cover the cost of production and buyers are able to obtain enough to serve their needs, the market is sustainable over a wide range of prices.