sha sha asked:
I’m looking for specific answers for the different functions of price in the economy. It’s for my homework. Help pls.
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I’m looking for specific answers for the different functions of price in the economy. It’s for my homework. Help pls.
Add a link here 1
I’d say price has ONE function, but serves several purposes. Prices are there to ensure that supply equals demand for any product or service. This is useful for several reasons: (1) it limits the demand of scarce products or commodities to sustainable levels — which would otherwise have had to be done throught inefficient rationing schemes; (2) in case of scarcity the price signal induces producers to increase their capacity because rising prices means rising profitability; and (3) relative price changes send important signals to decision makers about changing preferences — which would otherwise (think Soviet Union!) have had to be handled through incredibly cumbersome planning procedures.
Comment by Hans C — September 1, 2009 @ 4:23 pm