Prices In A Market Economy

Date: 2015-10-07; view: 483.

What? How? Who?

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PART IV Часть 4 (Стр. 319 – 330) I Applied Economics

Lesson_3_Text 1

SUPPLY, DEMAND AND MARKET PRICE

Every society must provide answers to the same three questions:

• What goods and services will be produced?

• How will those goods and services be produced?

• Who will receive them?

Societies and nations have created different economic systems to provide answers to these fundamental questions. Traditional economies look to customs and traditions for their answers while others, known as command economies, rely upon governments to provide the answers. In free enterprise systems, market prices answer most of the What, How and Who questions.

Because market prices play such an important part in free enterprise systems, those systems are often described as «price directed market economies.» Supply and demand are the forces that determine what prices will be.

Prices perform two important economic functions: They ration scarce resources, and they motivate production. As a general rule, the more scarce something is, the higher its price will be, and the fewer people will want to buy it. Economists describe this as the rationing effect of prices.

In a market system goods and services are allocated, or distributed, based on their price.

Price increases and decreases also send messages to suppliers and potential suppliers of goods and services. As prices rise, the increase serves to attract additional producers. Similarly, price decreases drive producers out of the market. In this way prices encourage producers to increase or decrease their level of output. Economists refer to this as the production-motivating function of prices. But what causes prices to rise and fall in a market economy? The answer is Demand! ПОСТАВКА, ТРЕБОВАНИЕ И РЫНОЧНАЯ ЦЕНА