Price Mechanism Flashcards
1
Q
What is the price mechanism
A
excess demand and supply are eliminated by the invisible hand also known as the price mechanism
2
Q
How does the price mechanism work
A
The price mechanism is the means by which decisions of consumers and businesses interact to determine the allocation of resources. For example, if one good is very popular, things like long queues etc send signals to producers to produce more as there is an incentive to create profit. It allows for equilibrium to be restored in the market.
