Describe the role prices in market economics.
Answers
→Answers :
The price of goods plays a crucial role in determining an efficient distribution of resources in a market system..
→Explanation :
Price acts as a signal for shortages and surpluses which help firms and consumers respond to changing market conditions. ...
Falling price encourage people to buy, and cause firms to try and cut back on supply.
Explanation:
Describe the role prices in market economics.
The price of goods plays a crucial role in determining an efficient distribution of resources in a market system.
Price acts as a signal for shortages and surpluses which help firms and consumers respond to changing market conditions.
If a good is in shortage – price will tend to rise. Rising prices discourage demand, and encourage firms to try and increase supply.
If a good is in surplus – price will tend to fall. Falling price encourage people to buy, and cause firms to try and cut back on supply.
Prices help to redistribute resources from goods with little demand to goods and services which people value more.
Adam Smith talked about ‘the invisible hand‘ of the market. This ‘invisible hand’ relies on the fluctuation of prices to shift resources to where it is needed.