How do people adjust their utility judgement according to market prices?

Previously I talked about people could have incentives to borrow others’ opinions to adjust their utility judgement and one of the sources would be signals sent in the form of market prices. Market prices would definitely be one of the most significant and effective signals made by the market. Today I want to discuss about how people adjust their utility judgement according to market prices and what are the difficulties of adjusting utility judgement.

For people to adjust their utility judgement, price has several functions. Firstly, price is determined by the supply and demand relationship in the market, so people can use price changes to reflect the moves of either supply side or demand side. Secondly, even in a imperfectly competitive market, price can reflect suppliers’ target consumer groups, so from price, people can know if the product is designed for them. Thirdly, price in the resale market can show how much people can get out of a product they have bought once they decide they do not need the product any more.

However, price is a reflection of all market information; therefore, though individuals may have a sense of what the general market think about the product, individuals do not how different their own individual preferences are from the general market’s preference. Secondly, nowadays, there are many oligopoly markets where suppliers have more power of determining the prices, prices set by suppliers can manipulate people’s opinions, especially when combining use of advertising. Thirdly, once every one adjusts their individual utilities according to others’, a price increase can lead to a multiple effect in terms of people’s judgement of utility. As one individual increases his/her utility expectation, others will also increase accordingly, and this increase will repeat and accumulate and create multiply effects.