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Price Flexibility

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PRICE FLEXIBILITY
For coordination of activities to be preserved (or restored) when the economy is disturbed by changes in these determinants, something still more is required: each separate price must move in a direction that will restore equilibrium. This necessity for prices to adjust in certain directions may be expressed as a communications requirement. To put it in somewhat extreme form: for a given economic unit to plan its activities so that they will “mesh” with those of others, it must have information about the intentions of everyone else in the system. When one of the determinants underlying market supplies and demands changes so as to disequilibrate the system, ensuing price movements must communicate the requisite information to everyone concerned. http://www.britannica.com/EBchecked/topic/178486/economic-stabilizer/57935/Price-flexibility DISRUPTING SUPPLY AND DEMAND
The determining of market prices through the dynamic interaction of supply and demand is the basic building block of economics. Consumer preferences for a product determine how much of it they will buy at any given price. Consumers will purchase more of a product as its price declines, all else being equal. Firms, in turn, decide how much they are willing to supply at different prices. In general, if consumers appear willing to pay higher prices for a product, then more manufacturers will try to produce the product, will increase their production capacity, and will conduct research to improve the product. Thus, higher expected prices lead to an increased supply of goods. This dynamic interaction produces an equilibrium market price; when buyers and sellers transact freely, the price that results causes the quantity demanded by consumers to exactly equal the supply produced by sellers.
But when government adopts a price control, it defines the market price of a product and forces…...

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