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The price mechanism

The price mechanism

The price mechanism is the system through which changes in relative prices allocate scarce resources in a market economy. An increase in demand shifts the demand curve outwards from D1D_1D1​ to D2D_2D2​, raising equilibrium price and quantity, while a decrease in demand shifts it inwards from D1D_1D1​ to D2D_2D2​, lowering equilibrium price and quantity. The price mechanism coordinates buyers and sellers without a central planner deciding exactly what each firm must produce.

1.8.1 How markets and prices allocate resources Lesson

  1. A Level
  2. /Economics
  3. /1.8.1 How markets and prices allocate resources

Step-by-step lessons on AQA A Level Economics 1.8.1 How markets and prices allocate resources. Each one builds up to exam-style questions. Start with the core supply-and-demand models before moving on to the more evaluation-heavy macroeconomic policy topics.

Lessons