StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

Price Mechanism in Economics - Essay Example

Cite this document
Summary
In the paper “Price Mechanism in Economics,” the author looks at the science that deals with the forces of demand and supply and how these forces, in turn, allocate the scare resources at our hands. Economics is sub-divided into micro-economics and macro-economics…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER96.7% of users find it useful
Price Mechanism in Economics
Read Text Preview

Extract of sample "Price Mechanism in Economics"

Scarcity in simple words is the shortage of a useful resource or an item. In economics terms, scarcity is referred to as the lack of sufficient factors of production needed in the production of certain goods and services. Economists maintain that scarcity exists on economy-wide bases. For e.g. Individuals want many things for consumption but they have to go without some. Businesses have a choice of buying certain equipment in which they have to make a choice and go for the best option. Similarly, economies face scarcity when they decide to produce certain goods with finite resources and forego others.

The concept with which these choices are made is called “Opportunity Costs”. This is a basic principle concerning scarcity. The concept holds that opportunity cost is giving up the next best alternative for the best and most rational choice. Similarly, trade-offs are another option to counter scarcity, so exchange and international trade.In this class, we expect that we will be given certain tools and techniques that will help us manage the problem of scarcity and will help us deal with it in the most efficient manner.

This will minimize the impact of scarcity and help us make rational choices given the quantities of finite factors of production at our hands.Equilibrium means balance and where there is no tendency to change. Market equilibrium is a situation where the plans of buyers meet the plans of suppliers at a particular price and hence there is no tendency to change as it will bring about varying outcomes from the perspective of both buyers and sellers. Therefore, it is the price at which a certain quantity of goods is supplied and bought and where a market is working efficiently.

An example of how a change in demand resulted in a change in price can be taken from the oil industry. From 2000 onwards, the global economy experienced a boom. As a result, demand for oil started increasing exponentially. This resulted in an increase in oil prices and oil prices reached near to $140/barrel in the first half of 2008.Similarly, the supply of a particular commodity also plays an important role in the price of that good. For example, Silicon chips require a particular type of temperature and hence cannot be produced everywhere.

As a result, the supply of these chips is pretty low and despite being produced at a low manufacturing cost, they are sold at a very high price.The price mechanism keeps markets in equilibrium by changing the prices in response to changes in demand and supply of a particular commodity. For example, the high demand for a particular commodity will initiate a price increase in the market and vice versa. Similarly, low supply will also initiate a price change and vice versa. Market Mechanism thus helps to level the plans of buyers and sellers by making required changes to the price of that good.

Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(Price Mechanism in Economics Essay Example | Topics and Well Written Essays - 500 words, n.d.)
Price Mechanism in Economics Essay Example | Topics and Well Written Essays - 500 words. https://studentshare.org/macro-microeconomics/1561635-discussion-paper
(Price Mechanism in Economics Essay Example | Topics and Well Written Essays - 500 Words)
Price Mechanism in Economics Essay Example | Topics and Well Written Essays - 500 Words. https://studentshare.org/macro-microeconomics/1561635-discussion-paper.
“Price Mechanism in Economics Essay Example | Topics and Well Written Essays - 500 Words”. https://studentshare.org/macro-microeconomics/1561635-discussion-paper.
  • Cited: 0 times

CHECK THESE SAMPLES OF Price Mechanism in Economics

Business Environment of Tesco

Tesco also maintains a strong supplier environment which aims to deliver to the company quality products at effective price ranges.... Business Environment Introduction The Business Environment of an Organization is studied in regards to Tesco located in United Kingdom.... The Tesco is a large departmental store having its presence both in United Kingdom and as well as on a global sphere....
14 Pages (3500 words) Essay

Economics for Transport Manager

The main aim of this essay is to discuss the different aspects of transport economics along with identifying the importance of the sector in every economic transaction.... Thus the main aim of this paper is to discuss the different aspects of transport economics along with identifying the importance of the sector in every economic transaction.... The paper therefore discusses the economics of the transport sector applicable to business perspectives....
14 Pages (3500 words) Essay

Price Setting Strategy

As such, this paper seeks to evaluate the price mechanism that is used by Kentucky Fried Chicken (KFC), an international fast food restaurant that operates in more than 80 countries.... As such, this paper seeks to evaluate the price mechanism that is used by Kentucky Fried Chicken (KFC), an international fast food restaurant that operates in more than 80 countries.... In some instances, KFC uses the strategy of price cuts in response to the price mechanism that is used by other competitors in the same industry....
3 Pages (750 words) Assignment

Economic Resources and Mother Nature

price mechanism, also called market mechanism is the basis to decide/determine resource allocation, types, quantity, quality of goods and services to be produced.... price mechanism is a means to organize an economic activity by meaningfully linking the decisions of consumers, producers and holders of productive resources across the globe.... It is necessary to understand the type/nature of resources, causes of exhaustion to device a price/market mechanism that may resolve the problem of APPROACHING EXHAUSTION of NON-RENEWABLE NATURAL RESOURCES. These core resources serve all living beings by producing a variety of useful goods and services....
4 Pages (1000 words) Essay

Way to Get Efficient Allocation of Recourses

62), "market is a mechanism that brings A market system is necessary to convey the decisions made by buyers and sellers of products and resources".... It is influenced with some factors (non-price factors): tastes and preferences of consumers, quantity of buyers in the market, the prices for the goods-substitutes, and a level of income of buyers, consumer expectations concerning the future prices, income and presence of goods.... The price of the goods and quantity of demand for these goods are inversely proportional quantities....
3 Pages (750 words) Essay

Markets; Price determination and resource allocation

Producers would want to minimize cost to meet the price competition.... As a whole, a competitive market presents the price system brought about by correspondence of supply and demand and resources are allocated efficiently without intervention.... The law of supply and demand asserts that the equilibrium market price of a certain commodity is where supply equals demand.... As shown in the succeeding diagram, the demand curve is negatively sloping because an increase in price reduces the amount of purchases....
4 Pages (1000 words) Essay

Macroeconomics Pricing Mechanisms based on Glastonbury Music Festival Ticket Sale

This paper aims to analyze and compare the varied macroeconomics pricing mechanisms as well as the applicable strategies on ticket allocation, all in a bid to determine the best mechanism that would assist work toward a Pareto efficiency balance for this record-breaking event.... The general price theory associates the price of a commodity to vary directly with the value of the commodity.... In a market situation, sellers aim at an optimal price for their commodities while buyers to the contrary opt for the minimal price set on commodities....
7 Pages (1750 words) Case Study

Applied Economics-Using SAS

hellip; ese ranges from demand, supply and price mechanisms theories, in my case I will take price mechanism theory in its application its significance and the way it operates.... This will go ahead to describe the factors influencing the economic situation in a given market in connection The theory of price mechanism is of significant role in the capital market as it determines the demand and supply in of various commodities.... Micro economics as a branch of social science encrypts various theories, being that it is always covering the limited business scope in the satisfaction of human wants....
5 Pages (1250 words) Assignment
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us