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| SHOPPER'S DELIGHT | |
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Rather than prices being set by the state, as in a Command Economy with a fixed price system, prices are determined in a decentralized fashion by trades that occur as a result of sellers' ''asking prices'' matching buyers' ''bid prices'' as a result of Subjective Value Judgement in a Market Economy . Since resources are limited at any given time, consumers are relegated to satisfying wants in a descending hierarchy and bidding prices relative to the urgency of a variety of wants. This information on relative values is communicated to the markets for the factors of production. In turn, relative prices for the productive services are established. These two sets of prices establish market value, and serve to guide the rationing of resources, distributing income, and allocating resources. Those goods which command the highest prices (when summed among all individuals, this accounts for the consensus valuation by society) provide an incentive for businesses to provide these goods in a corresponding descending hierarchy of priority. When prices increase, more productive forces are applied to satisfying the demand driven by the opportunity for higher profits. This increases supply, which eventually lowers the price and the profit incentive to increase supplies. Also, since resources are scarce, supplies of other goods will be diminished in order to increase output of the good whose demand has increased. Hence, price affects supply and demand as well as ''itself'' being influenced by supply and demand. As resources become more scarce the price increases, which reduces demand thereby ensuring that the quantity demanded does not exceed the quality supplied. Hence, the free price sytem performs the function of rationing resources. Individual employments and incomes are also guided by the price system. Employment will move toward those goods and services that consumers value and away from those with declining importance to consumers as a result of changes in prices. SEE ALSO REFERENCES
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