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.
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| meaning of price mechanism |
The role of price mechanism in
economic
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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.
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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.
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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.
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Free
mechanism help to establish a standard for work by using all rare resources.
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Price
mechanism also motivate for economy growth. Price mechanism also motivate for
improvement, innovations and R&D etc.
