ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -In economics, the market mechanism is a mechanism by which the use of money exchanged by buyers and sellers with an open and understood system of value and time trade-offs in a market tends to optimize distribution of goods and services in at least some ways.

Detailed explanation-2: -Free markets are theoretically optimal, with supply and demand guided by an invisible hand to allocate goods efficiently. In reality, however, free markets are subject to manipulation, misinformation, asymmetries of power & knowledge, and foster wealth inequality.

Detailed explanation-3: -A price mechanism affects both buyer and seller who negotiate prices. A price mechanism, part of a market system, comprises various ways to match up buyers and sellers. The price mechanism is an economic model where price plays a key role in directing the activities of producers, consumers, and resource suppliers.

Detailed explanation-4: -As the price mechanism determines what consumers spend their money on it also determines how scarce resources are allocated (used). Prices have three seperate functions: rationing, signalling and incentive functions.