In Economics, What Is a Price System

In economics price system refers to regulating the production and consumption of goods which are taken on trade value. There can various price systems in economics like free, mixed and fixed. These pricing systems are controlled by the certain outside factors of the market particularly like production factors like wages, rent of land etc.

Economic pricing system encourages both consumers and producers in making decisions. In most cases the consumers will buy products which have least price. And the producers will manufacture only those goods that give them profits. These producers will have to know the trends of the market clearly in order to sustain the market for their products.

A free price system refers to that economy where the prices are set naturally as per demand and supply without any outside intervention. The more there is demand for the product the more the producers are motivated to produce. But at the same time the producers should keep in mind to keep the prices low for the consumers to buy them. The low the prices the more attractive it becomes to the end users.

This type of free price system is best suited for capitalistic economy, where there is no interference of government in fixing pricing. Here the producers and consumers are free to control the market price of commodities which is motivational for them to earn unlimited profits. The market is totally different in fixed pricing, where prices are controlled by factors outside the economic purview.

Here the government is in total control of the pricing. It becomes a centrally controlled pricing system. The government makes the entire planning of what to be produced, volume to be produced and the price of each commodity. Although the government is in full control of production and pricing, it does keep in mind the needs of consumers. If this is not taken care of it may result in shortage of some things and excess of other.

The fixed and free pricing system is one with a combination of regulated pricing policy and free enterprise. Economies will have a set back if they have only free pricing or fixed pricing. Hence it is fair enough to have a fixed and free pricing system where the producers are also free to pitch in their ideas in pricing policies. Whatever the kind of pricing system the economy follows the main concern is about the demand and supply for the products. Next comes the consumer’s needs for the kind of products they wish to purchase. Keeping this in mind a fair price policy should be maintained for the benefit of both.