Question

What is the essential features of the price system and what is the role of a middleman. Please thoroughly explain.

Answer 1

Price system refers to an economic system wherein the relative prices constantly change to reflect changes in demand and supply. Prices act as signals of relative scarcity to people in the economic system. The price system embraces both types of market and widely operates so as to ensure that resources are allocated as according to the consumer demand. The main features include:

-- Both the consumer and the producer make choices that determine the equilibrium price

-- The resources are allocated efficiently because prices adjust until the maximum number of products and services are sold

-- The market forces (not government policy) determine prices. In effect, the system runs itself

-- When the conditions in the market change, the prices will change too

Middleman plays an important player in price system by lowering transactions costs with bringing together the buyers and sellers. Both the producers and consumers gain immensely from the roles of middlemen, who ensure that there is a seamless goods flow in the market by matching demand and supply. It provides feedback to the sellers about the market, hence influencing the decisions made by the producers. Buyers, on contrary, gain from the services offered by middleman, such as promotion and delivery. Buyers can get the right quantity they want, as middlemen are able to sell in small units