Economics essay on price mechanism
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The price mechanism brings about equilibrium between demand and supply forces. The price at which demand and supply arc in equilibrium, stay in the market. Any change in demand and supply forces will change the equilibrium prices. The price mechanism directs the producers to decide what, how and for whom to produce.
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· Definition: Price mechanism refers to the system where the forces of demand and supply determine the prices of commodities and the changes therein. It is the buyers and sellers who actually determine the price of a commodity. Definition: Price mechanism is the outcome of the free play of market forces of demand and supply.
According to BuisnessDictionary.com, Price mechanism is defined as , System of interdependence between supply of a good or service and its price. It generally sends the price up when supply is below demand, and down when supply exceeds demand. Price mechanism also restricts supply when suppliers leave the market due to low prevailing prices, and ...
· The price mechanism plays three important functions in a market: . 1/ Signalling function. Prices perform a signalling function – they adjust to demonstrate where resources are required, and where they are not; Prices rise and fall to reflect scarcities and surpluses; If prices are rising because of high demand from consumers, this is a signal to suppliers to expand production to meet the ...