Price Mechanism

Price mechanism refers to the structure where the forces of demand and supply establish the prices of merchandise and the changes therein. It is the buyers and sellers who really establish the price of goods. It is a method of interdependence between supply of a good or service and its value. It usually sends the value up when supply is under demand and down when supply go beyond demand. Price mechanism also restricts supply when suppliers depart the market due to short prevailing prices, and increases it when added suppliers come in the market due to high accessible prices.