Economics Question:

What are the functions of price mechanism in a free market economy?


Price Mechanism

Price mechanism is the point, which equilibrates supply and demand within a market. It is a mechanism of pricing. The price mechanism is one, which allows the prices of good and services to be decided by the interplay between supply and demand. There is no centralized price fixing.

The price mechanism is the concept that the free market, when left to its own devices, will formulate fair prices of the goods or services on its own by the natural laws of supply and demand.

Previous QuestionNext Question
What advantages might a socialist system have in responding to the needs of the poor?What is the impact on the economy if price ceiling or price floor were removed?