CHAPTER 5 - Price_Mechanism_in_Microeconomics.pptx

this pp is about price mechanisms

1. The Price Mechanism in Microeconomics Understanding How Prices are Determined in a Market Economy

2. Introduction to Price Mechanism The price mechanism is the system where the forces of demand and supply determine prices in a market. It plays a crucial role in resource allocation in a free market, allowing decisions based on price signals.

3. Demand and Supply Basics

4. Equilibrium Price

5. How the Price Mechanism Works

6. Functions of the Price Mechanism

7. Signaling Function of Price

8. Incentive Function of Price

9. Rationing Function of Price When there is a shortage, higher prices ration goods to those willing to pay the most. This prevents overuse of scarce resources.

10. Allocative Function of Price

11. Market Disequilibrium

12. Price Controls

13. Effects of Price Ceilings

14. Effects of Price Floors

15. Price Elasticity of Demand and Supply

16. Impact of Elasticity on Price Mechanism

17. Role of Competition in the Price Mechanism

18. Case Study: Price Mechanism in Action Example: Fluctuations in oil prices due to changes in global supply and demand. Analysis: Price mechanism adjusts based on external factors like political events or technological changes.

19. Limitations of the Price Mechanism

20. Conclusion