How the Pricing Works
Google, and the other search engines, sell their advertising on public auction. Advertisers bid for specific keywords. It is an automated process that determines which ads will receive prominence in the search engines. It is based, among other things, on the quality of your advert, how relevant it and your landing page are and the click through rate. Relevance is determined by the keywords used. The quality rate, as determined by the search engine, is then multiplied by the amount that you bid for the keywords. This determines your placement. If you have the highest combined score you get the top position.
The cost of the Google keywords depends on their popularity, with some words costing a lot more than others. When you join the Ad Auction, Google will give you a suggested price for the keywords. If you bid much below the suggested price, chances are you won’t see any of your ads on Google search.
When a user types in the keywords the search engine algorithm determines which advertisements appear and where.