Question

Identify the conditions that are a pre-requisite for the price mechanism to operate.

• A. Cost should reflect the sacrifice made in terms of resources.
• B. Producers should be able to anticipate demand correctly.
• C. Demand should reflect needs of the people.
• D. All of the above

Answer 1

The correct option is D All of the above

Price mechanism refers to the mechanism where price directs the flow of goods and services in the market as it directs the supply by the production sector i.e supply will increase if price increases and vice-versa and the demand sector i.e demand will increase if price decreases and vice-versa. Therefore, price mechanism will operate only when the producer sector will efficiently anticipate the demand by the needs of the people and supply the commodities where cost in the generation of the commodities must be reflected in terms of opportunity cost.