The price system is an economic system whereby the allocation of scare economic resources are done using the price. That is, it gives room or paves way for free market forces of demand and supply in the distribution of scare resources.
Here, prices of goods and services are not determined or influenced by any government authority, rather, goods are distributed using prices. That is ‘he who can pay for the price offered by the seller gets what he wants’.
The overall importance of the price system centres on the fact that:
1. It helps to solve the economic problem of “what to produce?” Producers or manufacturers or even service providers will always produce those goods or render such services that will help them to maximize profit. Thus, having profit in mind as the reason for venturing into business, people will always tend to produce those goods or render such services that will enable them to make profits.
2. The price system also assists in solving the basic problem of “who gets what is produced?” To produce or allocate scares resources, the producer will always examine the population to know who among the people have the ability to pay for what is to be produced. This the producers do by determining the class of people to be produced for, and the nature of what is to be produced will help them to determine this.
3. Price system provides for freedom of choice. Producers are free to make choice of what to produce or services to render. Also buyers are free to determine what they buy without anybody forcing it on them. The important thing is that whoever can pay for what he wants gets it. Thus if producers can pay for the factor inputs, they get them and if buyers can pay for goods or services, they get them as well.
Here, prices of goods and services are not determined or influenced by any government authority, rather, goods are distributed using prices. That is ‘he who can pay for the price offered by the seller gets what he wants’.
The overall importance of the price system centres on the fact that:
1. It helps to solve the economic problem of “what to produce?” Producers or manufacturers or even service providers will always produce those goods or render such services that will help them to maximize profit. Thus, having profit in mind as the reason for venturing into business, people will always tend to produce those goods or render such services that will enable them to make profits.
2. The price system also assists in solving the basic problem of “who gets what is produced?” To produce or allocate scares resources, the producer will always examine the population to know who among the people have the ability to pay for what is to be produced. This the producers do by determining the class of people to be produced for, and the nature of what is to be produced will help them to determine this.
3. Price system provides for freedom of choice. Producers are free to make choice of what to produce or services to render. Also buyers are free to determine what they buy without anybody forcing it on them. The important thing is that whoever can pay for what he wants gets it. Thus if producers can pay for the factor inputs, they get them and if buyers can pay for goods or services, they get them as well.
Comments
Post a Comment