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Chapter 4: Q. 4.1 (page 75)

Discuss the essential features of the price system

Short Answer

Expert verified

Prices are flexible, market driven and neutral.

Step by step solution

01

Step1. Introduction

Price system is a mechanism through which prices are determined.

02

Step2. Explanation

Price systems have the following major characteristics/features:

1. Price system is neutral: No consumer or producer can determine/influence the prices.

2. Price system is market driven: The prices are solely determined by the interaction between market forces of demand and supply.

3. Price system is flexible: Prices adjust to every smallest of change/fluctuation in demand and supply in the market. Hence, they are flexible.

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