Question

What is price mechanism? Discuss the limitations of price mechanism.

Answer 1

Meaning of price mechanism

Price mechanism refers to a process through which price is determined by the interaction of forces of demand and supply. When prices of goods and services are increased then buyers reduce their demand but sellers offer to sell more.

Limitation of price mechanism: 

1) Price mechanism reduce s competition

2) Wrong assumption

3) Due to price mechanism there is unequal distribution of income 

4) Immobility of resources

5) Ignorance of social goods 

6) Interference of Government

7) Unemployment and Depression

 

 

 

Price mechanism refers to the interaction between the forces of demand and supply determining prices of goods and services and resources in different markets.