The free enterprise: price system, Microeconomics

The Free Enterprise:  Price System

The free market system is where the decision about what is produced is the outcome of millions of separate individual decisions made by consumers, producers and owners of productive services. The decisions reflect private preferences and interests.

For the free enterprise to operate there must be a price system/mechanism.

The price system is the situation where the vital economic decisions in the economy are reached through the workings of the market price.

Thus, everything - houses, labour, food, land etc come to have its market price, and it is through the workings of the market prices that the "What?", "How?", and "For whom?" decisions are taken.  The free market thus gives rise to what is called Consumer Sovereignty - a situation in which consumers are the ultimate dictators, subject to the level of technology, of the kind and quantity of commodities to be produced. Consumers are said to exercise this power by bidding up the prices of the goods they want most; and suppliers, following the lure of higher prices and profits, produce more of the goods.

Posted Date: 11/27/2012 4:18:01 AM | Location : United States

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