What you about Price Mechanism Price mechanism kya he

What you about Price Mechanism

Price mechanism is a totally free financial system in which all its components or elements are free to take any financial decision like firm, consumers and other production factors. There are lots of authorities in the market. Individual & collective decision should be taken according to the market. These free mechanism help to develop a policy where all the price & trade fixed by their individual behaviour.

meaning of price mechanism

The role of price mechanism in economic

ü  What to produce and what quantity – this is the first step for price mechanism to determine – what to produce and what is the quantity of a particular things, we know that our available resources are rare so an optimum utilization will be there, when we know – what to produce and in what quantity then we draw a “production possibility curve” for economy. It also includes the quantity of capital & consumers goods and services. If we increase the supply of any product, we get fewer amounts due to their demand. For having less supply of any product, we receive a good price. So demand and supply fix a fare price mechanism for every-thing.

ü   How to produce – there are lot of production methods in economy. Every producer pay interest, salary, rent or interest as expenditure and also profit for his own. if we add all these things then we get the total cost of the production. In economy, if labor is available on a low cost then we use this method in productions. But if we have capital goods on a cheaper cost then we prefer this method. What types of method we adopt, it totally depends on the cost of the method.

ü  Income distribution – this is also a important part of price mechanism. In a free economy, income and goods distribution are inter-related. One side – household provides their services & receives wages, rent, income or interest and after that they buy goods and services. On the other hand, a firm produces goods & services by the help of house-hold or production factor. Consumers or house-hold by these goods & services and pay to firm for these things. So money will be moving from one hand to another and also making an equal distribution.

ü  Free mechanism help to establish a standard for work by using all rare resources.

ü  Price mechanism also motivate for economy growth. Price mechanism also motivate for improvement, innovations and R&D etc.  

Main issue or central problem of an economic

Main issue or central problem of an economic

Every economy have lot of issue or problem like what to produce, how to produce, for whom to produce, unemployment, capital goods, consumer goods and so on. Every economic have a limited or rare resources to use. So every economy wants to optimum utilization of available rare resources. Also when there is a multiple use of a single resource.

central problem of an economic

Main issue or central problem of an economy

What to produce and how much – every human being have a different demand for goods and services. Overall in economic have a multiple demand so it is the responsibility of the economic to analysis these different products demand and produce that much quantity which is sufficient or equal to demand.

How to produce – every economic have a multiple demand for different product and there are lot of combination and method for production. So every economic choose one method for production which is cost effective and produce more goods and services to meet the demand.

For whom to produce – in our society, there are lot of difference in our income level. Some-one is earning more than a lot but other one is earning below 10K. So it creates a difference in their buying behaviour for goods and services. Another is consumer goods and capital goods or durable goods. So economic have to decide those things. Governments also play an important role by tax collection, social security and try to cover the gap between high to low level income.

Efficiency in utilizing the resources – it is the responsibility of the society or economic to find out that there are full utilization of resources or less then the capacity. There are rare resources in every economic so that is our duty to use them full. Say no to misuse or wrong distribution.

Is the economy growing – this is the final step of the process that a economy is growing or not. If we are growing so what is the rate and if we are not growing so what is the reason for this. What is the ratio in production of consumer goods and capital goods? Find out the new innovation for economy and their use