Advantages/Merits of price mechanism
- Increases variety of goods and service
- Encourages hard work
- It increases efficiency in resource allocation. Under price mechanism, the major aim of producers is profit maximization. This minimizes resource wastage.
- Price mechanism encourages competition in production. This leads to the production of better quality goods and services hence improved standards of living for consumers.
- The system facilitates the exploitation and utilization of resources in the economy. This increases the production of goods and services hence economic growth and development.
- 4. It leads to the creation of more employment opportunities. The high profits made by producers are used to expand business activities hence creating more employment
- It promotes consumer sovereignty. Consumer sovereignty refers to the situation under the free enterprise economy where the consumer has the freedom to determine what to be produced in the economy by buying more of a particular commodity (casting a vote). Producers allocate more resources in the production of a commodity which is highly bought in the market.
- It promotes research, inventions and innovations due to the high profits got by producers. This leads to improvement in the techniques of production.
- Price mechanism encourages speculation. Speculation refers to the buying of commodities in periods when they are in plenty and “cheap and selling them in periods when they are scarce and at high prices. This leads to price stability.
- It facilitates arbitrage. Arbitrage refers to me geographical transportation of commodities from areas where they are at low prices to areas where they are at high prices. This helps in redistribution of resources.
- Price mechanism does not require much administrative machinery since it is automatic. This lowers the cost of administration of the economy by the government.
- It encourages flexibility in production as producers can easily adjust the production activities due to changes in price.
- It facilitates income distribution. This is because incomes go to those people who own resources and are able to buy goods and services.
- It encourages the development of entrepreneurial skills in the economy. This is because it promotes individual initiatives and creativity in the economy.
CATEGORIES Economics
TAGS Dr. Bbosa Science
thanks so much. is there videos