ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Price mechanism works through prices in a free enterprise economy, where all goods and services carry price tags with them. A whole set of prices prevail in such an economy. Goods and services are available at a price because it involves cost in producing these goods and services.

Detailed explanation-2: -Market economies work using the forces of supply and demand to determine the appropriate prices and quantities for most goods and services in the economy.

Detailed explanation-3: -Price-mechanism is an important feature of the capitalist economy, also called the market economy. In this, the prices are determined by the free interaction of the forces of demand and supply. It is an automatic self-regulating mechanism which runs with the motive of profit.

Detailed explanation-4: -Definition: Price mechanism refers to the system where the forces of demand and supply determine the prices of commodities and the changes therein. It is the buyers and sellers who actually determine the price of a commodity.

Detailed explanation-5: -The price mechanism also determines how income is distributed in a capitalist economy. In such an economy, consumers and producers are largely the same people. Producers “sell goods at given prices to consumers for money, and consumers receive “incomes from producers in exchange for their services.