Discuss the functions of price system – NABTEB QUESTION

The functions of price system are:

I. Allocation of resources: the price system rations out scarce resources among competing entrepreneur/economic activities

II. Determination of production: it determines what to produce, what quantity to produce, how to produce and for whom to produce.

III. The quantity demanded is determined by the price mechanism.

IV. Consumers have freedom of choice based on prices of goods and services

V. The price system determines the rewards going to various factors of production.