The Price System

The Price System The equipment casualty dodging is a means of organizing stinting activity. It does this by coordinating the decisions of consumers, provers, and owners of productive resources. Millions of frugal agents who have no direct communication with separately new(prenominal) be take by the hurt system to supply each others wants. Every economic system has three functions. In a decentralized usually private enterprise economic system, the price mechanism is the instrument by which these functions are performed. Prices are an facet of the consensus on the values of different things, and every society that permits exchanges among consumers has prices. Because prices are expressed in terms of a broad(a)ly grateful commodity, they permit a comparison of the comparative values of several(a) commodities--if shoes are $15 per pair and bread 30 cents per loaf, a pair of shoes is worth 50 loaves of bread. The price of anything is its value in exchange for a commodity of wide acceptability, money. A system of prices exists because individual prices are related to each other.

If, for example, metal rods cost 40 cents a pound and the butt of drawing a rod into wire costs 25 cents a pound, then, if the price of wire exceeds 65 cents, it will be profitable to produce wire; and if the price of wire locomote below 65 cents, it will be ruinous to produce wire. Competition, therefore, will hold the price of wire about 25 cents per pound above that of rods. A variety of such economic forces ties the entire structure of prices together. One function of the price system is to determine what is to be produced and in what quantity. Even an ancient preservation must choose between food and shelter, weapons and tools, priests and hunters. In a modern economy the potential variety of goods and services that may be produced is immense. Consider simply the 10,000 new book titles that are published each year or the hundreds of colors of tonality or the thousands of styles of clothing that are produced--each of... If you want to get a full essay, order it on our website: Ordercustompaper.com

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