price

Amount of money that has to be paid to acquire a given good, service, or resource. Operating as a measure of value, prices perform a significant economic function, distributing the scarce supply of goods, services, and resources to those who most want them through the adjustments of supply and demand. Prices of resources are called wages, interest, and rent. This system, known as the price mechanism, is based on the principle that only by allowing prices to move freely will the supply of any given commodity match demand. If supply is excessive, prices will be low and production will be reduced; this will cause prices to rise until there is a balance of demand and supply. If supply is inadequate, prices will be high, prompting an increase in production that in turn will lead to a reduction in prices until supply and demand are in equilibrium. A totally free price mechanism does not exist in practice; even in free-market economies, monopolies or government regulation may limit the efficiency of price as a determinant of supply and demand. In centrally planned economies, the price mechanism may be supplanted by centralized government control. Attempts to operate an economy without a price mechanism usually result in surpluses of unwanted goods, shortages of desired products, black markets, and stunted economic growth.

Find more information on price. Upgrade to Britannica Online for more on price.