The Price System :: essays research papers

The Price SystemThe impairment system is a means of organizing sparing activity. It does this by coordinating the decisions of consumers, producers, and owners of returnive resources. Millions of economic agents who select no direct communication with each other argon lead by the hurt system to supply each others wants. Every economic system has three social functions. In a decentralized usually confidential enterprise economic system, the price mechanism is the instrument by which these functions are performed.Prices are an expression of the consensus on the values of different things, and every golf club that permits deepens among consumers has prices. Because prices are expressed in terms of a widely unobjectionable commodity, they permit a comparison of the comparative values of various commodities--if tog are $15 per match 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 wid e acceptability, m unmatchedy.A system of prices exists because individual prices are related to each other. If, for example, metal rods cost 40 cents a log and the process of drawing a rod into wire costs 25 cents a pound, then, if the price of wire exceeds 65 cents, it will be utile to produce wire and if the price of wire falls 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 renewing 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 scrimping must choose between food and shelter, weapons and tools, priests and hunters. In a modern-day economy the potential variety of goods and services that may be produced is immense. engage simply the 10,000 new book titles that are published each twelvemonth or the hundreds of colors of paint or the thousands of styles of clothing that are produced--each of these developed collections being much smaller than modern technology permits.The second function of the price system an economy must perform is to decide how the coveted goods are to be produced. There is more than one way not only to skin a cow but also to dumbfound wheat, train lawyers, refine petroleum, and transport baggage. The efficient production of goods requires that certain explicit rules be followed no resource should be used in producing one thing when it could be producing something more valuable elsewhere and each product should be made with the smallest possible amount of resources.