THE ROLE OF PRICE MECHANISM

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THE ROLE OF PRICE MECHANISM

The pruning process under different market conditions. we should .ldl cu br eO) the role of the price system in a Modern Economy. In order I. a “late the role of  in a modern economy, we should have HeIlk of modern economy is. 1 modern free euterpe iisc economy is based  freedom, here every individual is free to take up any job he likes and  rvc  he n t like. lie is free to work or not to work. further, everyevery dravid I IS free 0 n any property and use it as he likes every individual is  free to en cr u c tract or agreement. that he thinks profitable for himself.Thu . freedom of oc patron. freedom of owing and using property and freedom of main pillars of a modern capitalistic economy.

PROBLEMS TO BE TACKLED BY PRICE SYSTEM

II The consumers convnuuing thc household have a varictv IIf unliuutcd want': hut the resources ilt their dlsl’mal lor the sati,ractioll of these wants arc limited. TIll’Y seck to select such combination of goods and services which will give them maximum satisfaclion, The consumcrs UCl11al1dschedule or curve indicates how much they would be willing to purchase at various prices, (2) The businessmen or producers supply the goods and services to the households. Their supply schedule \II curve communicates to the consumers the amounts they would be able to supply at various prices, But they have to select for production those goods and services and the quantities to he produced which will maximisc their profits. F,’r thi- purpovc. thcy must choose the most economical or lea” Coq combination of product ivc resources 1.\) Thc producers will maximisc profits and miniuuse costs hy suhstituting low-priced resources for high-priced resources. Thc resource’s demand
curves will indicate to the resourc e suppliers how muchof the resources the firms would be willing to employ  at the various prices of thc producti ve resources.(4) The households, as resource suppliers, offer 10 the firms productive resources in the form of land, labour, capital and entrepreneurial talents. The decisions of thc competing rc. ource suppliers are communicated to the producers by means of resource supply curves. The resource suppliers tcnd to shift their resources from the less rernunerauve to 1II0rc remunerative employments. In this way, they seck to obtain thc  maximum return from the resources they supply.Through Ihc price mechani m. the product demand intentions of the consumers or thc households
and the product supply decisions  of the firms result inseries of product prices. In the same manner, the resource demand decisions of the firms and thc resource resource supply decisions of the households will establish aseries of resources prices. In short, “The competitive pt ice  is a mechanism both lor  the decisions of the consumers.produce. suppliers to  and for  those decisions toward cuusistent product ion   This is <cries 01 inter-related decisions consumers. the r-uurcc supplier and resource U ci v. Thc dccisionv or  on the fad of scarl’lt) 01 resources at the dispo~al both of consumers and  arc influenced hyConsiderationss “f slIl’MlllItahlhty of both products and resources. because lWlh punctual andS arc cap.put to .Renault vc uses The prices of products ,lIId resources reflect th lative scarcitiesand when thc products andCscarce. their prices rise and it is a signal for vubstitutiun. Through substitutability, thc society uvcs Ic” of scarce resources and products and 1 0re. of those which arc comparatively less scarce,

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THE ROLE OF PRICE MECHANISM