Macro and Microeconomics Essay Example | Topics and Well Written Essays - 2000 words

Macro and Microeconomics - Essay Example Price mechanism; therefore, solve the problem of allocating scarce resources by ensuring they are allocated through competition in a free market. Moreover, price mechanism helps industries to produce efficient product that of high quality. The competition between firms ensures that the most efficient remain on the market while its edges others that are inefficient out of the market (Moon 2013). Efficient firms produce quality goods at a cheaper price compared to the inefficient ones. The high cost of production makes inefficient industries set a price that will cover the cost of production and thus they price at a higher price than efficient firms. The high priced goods become uncompetitive in a free market and draw the firm out of business (Mukhopadhyay 2). Price also serves the function of discounting to determine the cost as well as the amount or size of a commodity. However, price comprises the joint charge of goods and the profit attached to it. Therefore, price serves to determine the amount to be produced and the effectiveness of it. Price, therefore, serves as a planning tool to making the economic decision as to where the economy is to be taken (The fundamentals of market economy self-regulation). Price also stimulates firms and industries into production process due to high profit guaranteed when a firm is involved in large scale production. Lastly, price help in the distribution of income and resources to the most efficient industries in the market.