What term describes the process by which the market determines the price of a commodity?

The process by which the market determines the price of a commodity is known as price discovery. This involves the interaction of supply and demand in the marketplace, where buyers and sellers engage in transactions that lead to the establishment of a price. Price discovery reflects the varying perceptions of value held by participants in the market and is influenced by factors such as market conditions, news, economic indicators, and the availability of the commodity.

In essence, price discovery is essential for ensuring that prices reflect the true value as perceived by the market participants. It allows for the continual adjustment of prices in response to new information and changing circumstances, facilitating an efficient market environment where resources can be allocated effectively. This dynamic nature of price discovery is fundamental in commodity trading, allowing participants to understand market trends and make informed decisions.

The other terms do not accurately capture this specific process. For instance, price evaluation relates more to assessing a price rather than the ongoing process of establishing it. Market assessment typically refers to analyzing market conditions and trends but does not directly describe how prices are determined. Cost analysis is focused on breakdowns of costs and expenditures rather than how prices emerge in a market context.