Final answer:
Price discovery is the process by which a consensus market price is established through the interactions of buyers and sellers, based on demand and supply, without government oversight. It is part of how a market-oriented economy functions, with consumer and producer behaviors adjusting to price changes.
Step-by-step explanation:
Price discovery refers to the process through which the market determines the price of an asset. It involves the interactions between buyers and sellers as they negotiate and enter transactions, providing information that helps to establish a market price. In market-oriented economies, this process happens without direct oversight from government agencies, depending instead on the individual responses of consumers and profit-seeking producers to changes in prices instigated by the forces of demand and supply. When prices fluctuate, consumers adjust their purchasing decisions based on preferences and budgets, while producers adjust production to maximize expected profits. Price discovery is not about segmenting the market to charge different prices, but the dynamic process by which a consensus price emerges in a market.