Price Mechanism

Pabodha Marambe

What would be a very clear definition for price mechanism
and its functions???

Price Mechanism is a system in a free enterprise economy where prices of commodities are determined by market forces of demand and supply.
Its functions are:
-helps producers to determine what to produce.
-helps producers to determine how much to produce.
-helps producers to determine for whom to produce.
-promotes consumers choice.
-encourages arbitrage.
-discourages resource over-exploitation.
-helps in resource allocation.
-encourages production of better quality products.
-reduces the chances of monopoly power arise.
-encourages production of merit goods.


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