Answer to Question #194152 in Macroeconomics for abcde

Question

1.  Explain how price mechanism allocates resources in an economy?

Answer 1

Price mechanism refers to a method which uses the forces of demand and supply to allocate resources. Thus, allocation of resources is based on the demand and supply of a good in the economy. And since there is limit on resources, the proper allocation of resources is needed within various economy. Therefore the higher the supply, the less the price of a given commodity and the higher the demand, the high the price of a given commodity and vice versa.