Price mechanism determines the prices of commodities through
Answer Details
Price mechanism determines the prices of commodities through market forces.
Market forces refer to the interaction of supply and demand in a market economy. In a free market, the price of a commodity is determined by the level of supply and demand for that commodity. If there is a high demand for a commodity and the supply is limited, the price of the commodity will increase until the demand and supply are balanced. Conversely, if the supply of a commodity is high and the demand is low, the price of the commodity will decrease until the demand and supply are balanced.
The price mechanism works through the interaction of buyers and sellers in a market. Buyers are willing to pay a certain price for a commodity based on their needs and preferences, while sellers are willing to offer a certain price based on their costs of production and desired profit margins. The market price of the commodity is the point where the quantity demanded by buyers equals the quantity supplied by sellers.
Therefore, the price mechanism is a way of allocating resources in a market economy. When prices are allowed to fluctuate based on supply and demand, resources are allocated efficiently to the production of goods and services that are in highest demand. This allows for the most efficient use of resources and ensures that the market is responsive to the needs and wants of consumers.