Tag: supply

Price mechanism refers to the mechanism where price directs the flow of goods and services in the market as it directs the supply by the production sector i.e supply will increase if price increases and vice-versa and the demand sector i.e demand will increase if price decreases and vice-versa. This leads to distribution of goods and services according to the purchasing power of the individuals which brings inequality in the distribution channel which is inherited by generation to generations. 

Capitalist economies has private ownership where utilization of resources takes place for private gains, therefore here price mechanism takes place very smoothly without any government intervention in all types of private business that operates in a capitalist economy. 

Since the population is so huge that if any single private producer will come with a public utility product, it will require huge investment to satisfy all wants. Moreover, compared to other business the returns are very less in such kind of business as market price cannot be measured due to very widespread of distribution and consumption. 

According to the report, the countries with per capita income of Rs. 37000 or less are called Low-income countries.

In market mechanism, the government audits the overall output of the economy in order to ensure availability and efficient utilization of all the scarce resources in the economy. 

A reservation (or reserve) price is a limit on the price of a good or service. On the demand side, it is the highest price that a buyer is willing to pay. On the supply side, it is the lowest price at which a seller is willing to sell a good or service.

According to the law of supply, when the price of a commodity increases, the supply of the commodity increases and when the price of the commodity decreases, the supply of the commodity decreases. We can see that the law of supply has a direct relationship between supply and price. Hence, other factors remaining constant, when price of a commodity rises, there is expansion of supply.

In case of substitutes if the price of one commodity increases the demand for the other good will increase. Because there is an increase in the demand of that other good there will occur a increase in price to bring the market to equilibrium. 

Price ceiling is the maximum price the seller can charge to the customer. Government imposes price ceiling to protect the consumers. Price ceiling will lead to shortage as demand will exceed supply. This leads to black marketing, rationing by fist come first serve. Price ceiling is giving goods at a price that is fixed by government, the supplier cannot charge beyond that price. Hence, some price is charged even it is minimal but is not free of cost. Hence all the statements except D is incorrect. 

Household sector consumes various resources which are limited in means from the society. Therefore, the problem of these limited resources are faced by the households because their demands are unlimited and by the society as well because the society has to preserve these resources for future needs.