what is price mechanism its function
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A price mechanism, part of a market system, comprises various ways to match up buyers and sellers. Price mechanism is a mechanism where price plays a key role in directing the activities of producers, consumers, resource suppliers. An example of a price mechanism uses announced bid and ask prices.
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The signalling function of the price mechanism
Price changes send contrasting messages to consumers and producers about whether to enter or leave a market. Rising prices give a signal to consumers to reduce demand or withdraw from a market completely, and they give a signal to potential producers to enter a market.
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