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What are the Demerits of Price System?

Here we understand about the demerits of Price System in detailed.

What are the Demerits of Price System?
Before we discuss about the Demerits, first we understand about Price System.
Price System in a free market Economy: Price system is an economic organisation of prices and price changes. Each commodity, each service, each factor of production has a price which is expressed in terms of money. These prices serve as signals to consumers and producers both.
Now we will discuss its Demerits one by one in detailed:
The price system is open to criticism on a number of grounds:
  1. Production of Wrong Goods: Producers do not recognise any sense of duty to the society. In pursuing profit motive, they produce even those goods which are harmful to the people, e.g. liquor and opium.
  2. Neglect of Necessities: Price system based on profit motive caters to only those needs which find expression in terms of money. Luxuries are produced at the cost of essentials, because rich persons are prepared to pay high prices for luxuries, while ordinary persons do not have enough money to express their needs for such essentials as food and medicine.
  3. Instability: Sometimes total demand in the economy is less than total output and sometimes it is the other way round. Hence frequent ups and downs in economic activities create insecurity in the economic life of the people.
  4. Waste of Resources: Price system leads to waste of resources. The transfer of resources from declining industries to those which are expanding may take a long time. Labour and capital may remain idle and unemployed for a long time.
Demerits of Price System
Production of Wrong Goods
Neglect of Necessities
Waste of Resources
Role of Price Mechanism-Evaluation of Price Mechanism- Demerits of Price Mechanism in a Free Market Economy.
Tech writer at NewsandStory
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