The theory of price, also known as price theory or microeconomic theory, is a branch of economics that analyzes the determination of prices, allocation of resources, and market equilibrium in competitive markets based on the interaction of supply and demand forces. Price theory examines how consumers and producers make rational decisions to maximize utility, profits, or welfare, subject to budget constraints, preferences, and market conditions. The theory of price emphasizes the role of prices as signals, incentives, and allocative mechanisms that convey information about scarcity, value, and opportunity costs, guiding resource allocation, production decisions, and consumption choices in efficient, competitive markets. Price theory models various market structures, including perfect competition, monopolistic competition, oligopoly, and monopoly, and explores their implications for market outcomes, efficiency, and social welfare. Key concepts in price theory include price elasticity of demand and supply, marginal analysis, consumer surplus, producer surplus, market efficiency, and the invisible hand mechanism proposed by Adam Smith, which suggests that competitive markets allocate resources efficiently without central coordination or intervention, leading to optimal outcomes and Pareto efficiency.