Prices play a very vital role in the modern economy particularly the one which involves a free enterprise system. They guide and organize, like an invisible hand, almost all the economic activities concerning production, consumption, distribution and exchange of goods and services. The important functions usually performed by the prices perform the function of Co-ordination between consumption and production automatically. The consumers are able to convey their preferences through the prices they are willing to offer.
Similarly, the producers are able to indicate the channels into which they would allocate their productive resources. When price of a commodity rises it checks demand and stimulates supply, and vice versa. The price of a commodity or a service constitutes an income, which is through purchasing power, determines the extent and direction of economic activities. Due to this important function of prices there seems to be every justification to say, that the modern free enterprise system is governed by prices.
Prices are supposed to harmonize the interest of both the consumers and the producers. According to Beriham, ‘They tend to harmonize the desire of entrepreneurs for profits and the desire of consumers to satisfy their wants as fully as possible from the factors of production available. Prices automatically allocate the productive resources among the various uses in such a manner that each makes a maximum contribution to the total output.
Any misallocation is rectified through the price indicators. Price allocates the available labour force of a country by balancing the relevant supply and demand without any favoritism and injustice.
Analyzing the role of prices in an economy it can be concluded that the movements of prices can control the whole working of economy. Therefore, the factors including fiscal and monetary policies and institutions which are responsible to determine the direct ions of movements should be exploited very wisely. A healthy and smooth working of an economy largely depends upon the smooth movements of prices. Abrupt changes in movement of prices result in far- reaching distortions in the working of an economy.
The inflationary pressure in Pakistan has been considered mainly due to the global cause by the experts and economists. Being linked with the economies of other countries on basis of foreign trade, economic assistance, transfer t technology and direct foreign investment, Pakistan cannot avoid its impact. However, Pakistan has to suffer harder than the other due to her particular domestic circumstances; prolonged adverse position of balance of payments, extension deficit financing, international currency disturbances and acute shortage of commodities surplus to be exported. Besides, the constant increase in prices of imports such as wheat edible oils, petroleum and various kinds of machinery etc. has put Pakistan in great trouble. Since the last thirty years constructional activities in both the public and private sectors have increased to a great extent. The expenditure on construction have considerably increased the total supply of money in the country which has ultimately led to galloping inflation in Pakistan- To ease the burden of debt servicing and to lower the budget deficit a transparent privatization programme can help effectively. For this purpose, privatization proceeds should be properly used for debt retirement.
Similarly, the producers are able to indicate the channels into which they would allocate their productive resources. When price of a commodity rises it checks demand and stimulates supply, and vice versa. The price of a commodity or a service constitutes an income, which is through purchasing power, determines the extent and direction of economic activities. Due to this important function of prices there seems to be every justification to say, that the modern free enterprise system is governed by prices.
Prices are supposed to harmonize the interest of both the consumers and the producers. According to Beriham, ‘They tend to harmonize the desire of entrepreneurs for profits and the desire of consumers to satisfy their wants as fully as possible from the factors of production available. Prices automatically allocate the productive resources among the various uses in such a manner that each makes a maximum contribution to the total output.
Any misallocation is rectified through the price indicators. Price allocates the available labour force of a country by balancing the relevant supply and demand without any favoritism and injustice.
Analyzing the role of prices in an economy it can be concluded that the movements of prices can control the whole working of economy. Therefore, the factors including fiscal and monetary policies and institutions which are responsible to determine the direct ions of movements should be exploited very wisely. A healthy and smooth working of an economy largely depends upon the smooth movements of prices. Abrupt changes in movement of prices result in far- reaching distortions in the working of an economy.
The inflationary pressure in Pakistan has been considered mainly due to the global cause by the experts and economists. Being linked with the economies of other countries on basis of foreign trade, economic assistance, transfer t technology and direct foreign investment, Pakistan cannot avoid its impact. However, Pakistan has to suffer harder than the other due to her particular domestic circumstances; prolonged adverse position of balance of payments, extension deficit financing, international currency disturbances and acute shortage of commodities surplus to be exported. Besides, the constant increase in prices of imports such as wheat edible oils, petroleum and various kinds of machinery etc. has put Pakistan in great trouble. Since the last thirty years constructional activities in both the public and private sectors have increased to a great extent. The expenditure on construction have considerably increased the total supply of money in the country which has ultimately led to galloping inflation in Pakistan- To ease the burden of debt servicing and to lower the budget deficit a transparent privatization programme can help effectively. For this purpose, privatization proceeds should be properly used for debt retirement.
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