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What the price mechanism does

What the price mechanism does

Flowchart showing market disequilibrium leading to price rise, then signalling, incentive, rationing, and new equilibrium

In a market economy, prices coordinate millions of separate decisions by consumers and firms. This is the price mechanism, where demand and supply interact so scarce resources move toward their most valued uses.

1.2.7 Price mechanism Lesson

  1. A Level
  2. /Economics
  3. /1.2.7 Price mechanism