Price Mechan m ism in terms of Economics
Price mechanism is generally the interpendence of market forces. Market is usually governed by demand and supply curve. The prices of goods and services affects the demand and supply of that goods and servuces. This behaviour in which prices affect demand and supply curve of goods and services are known as price mechanism.
For example, let us suppose that there is any festival this month then the demand for festive goods will go up and once the demand rises supply tends to fall down due to sudden increase in demand. There occurs shortage of goods. Shortages leads to increase in the prices of goods. Once the price increases, supply tends to rise. This will further lead to decrease in the demand of that goods or services. This increase and decrease of demand and supply curve keeps on happening until the demand and supply curves are equal. Once they are equal then it is known as market equilibrium. For more clear view i would like to add a diagramatic image:
Price mechanism is generally the interpendence of market forces. Market is usually governed by demand and supply curve. The prices of goods and services affects the demand and supply of that goods and servuces. This behaviour in which prices affect demand and supply curve of goods and services are known as price mechanism.
For example, let us suppose that there is any festival this month then the demand for festive goods will go up and once the demand rises supply tends to fall down due to sudden increase in demand. There occurs shortage of goods. Shortages leads to increase in the prices of goods. Once the price increases, supply tends to rise. This will further lead to decrease in the demand of that goods or services. This increase and decrease of demand and supply curve keeps on happening until the demand and supply curves are equal. Once they are equal then it is known as market equilibrium. For more clear view i would like to add a diagramatic image:
No comments:
Post a Comment