4. Roles of prices in the market  

I. Introduction: Price are key ingredients in a market economy because they make things happen. Prices play a very important role in the buying and selling process.

In general, a price is defined as an amount of money paid for a unit of goods or service.

In details, the market price is the price at which the quantity demanded is equal to the quantity supplied.

2. Body:

P1: prices act as signals to buyers, sellers and producers.

When price increases, provides sellers with a selling signal ® more profit ® produce more.

When price reduces, gives consumers a buying signals ®  purchase product to substitute to the ones at high price or to store there.

P2: prices encourage efficient production.

Prices encourage business people to produce their goods at the lowest possible cost. The less it costs to produce an item, the more likely it is that its producers will earn a profit. Producers of the same products compete to attract more consumers:

+ to reduce the price. Fewer raw materials or low production cost.

P3: prices help to determine who consumers of products are.

After producing goods, sellers set the price.

+ If price too high®  only rich consumers can afford® difficult for producers to gain profit.

+ price too low®  a lot of consumers afford but worry about quality of product. That's why, it is necessary t find out the price which can satisfy both sellers and consumers.

III. Conclusion

Price plays an important role in a market economy. The role of price to the market economy is so essential that without it a market economy cannot operate, buying and selling would not happen.