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Prices Create Incentives to Work and Produce 

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Prices Create Incentives to Work and Produce 

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Prices are an incentive because they represent potential profit. When prices increase, producers produce more, so that they can get more profit. Inversely, when prices decreases, producers produce less, so that they can cut back on their losses. Prices, as wages and salaries, motivate workers. The opportunity to earn a higher wage can make people look for higher-paying jobs. When their are low wages, people tend not to seek work.

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Prices Allocate Scarce Resources Efficiently

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Prices Allocate Scarce Resources Efficiently

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Companies change the prices of the product they supply based in the number of rescorces they have avalible to them. In the early car buisiness for example the suppliers had to change the prices of the car they sold based on what model they weremaking and how much of them they made. If chevy only made 100,000 silverado trucks it might be more expensive to buy one because they are harder to make based on how much of them are made to sell.

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Prices allow markets to respond to changing conditions

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Prices allow markets to respond to changing conditions

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The different prices can allow the market to respond to major events such as wars and natural disasters. When there is natural disasters like the ones that happened back in 2005 gas prices soared because the supply for gas was lower so in order to produce more gas companies had to raise prices. This canhappen with anything because the prices are constantly changing for different companies and it allows them to adapt to different situations.

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Prices Convey Information to Consumers and Producers 

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Prices Convey Information to Consumers and Producers 

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To consumers, price signals the opportunity cost of a purchase. They have to consider what else that money can be used for. Often times, when the opportunity cost is high, people tend to think carefully if the purchase is worth the money.
To producers, price conveys what consumers want. Without monitoring prices, producers cannot know if the price is where the consumers want it to be. Producers can also use prices to higher the chance that consumers buy their products. Setting the price at the perfect amount is the best way to get demand at its highest.

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How people feel about constant price changes 

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How people feel about constant price changes 

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constant changes in prices can make people angry especially when they are too high