Price Mechanism Limitations of Agribusiness

Price Mechanism Limitations of Agribusiness
Price Mechanism Limitations of Agribusiness

Price Mechanism Limitations of Agribusiness 

Price Mechanism Limitations of Agribusiness. There are millions of prices, all of which are calculated simultaneously, in such a way that the production, distribution, and consumption of goods and services are perfectly organized. Overproduction or underproduction of any commodity that may occur will be calculated correctly over time by the price mechanism. For example, overproduction will lead to a decrease in prices and a reduction in production by manufacturers, and underproduction will lead to an increase in prices and an increase in production. The question now is whether the price system is so reliable and foolproof. Does the price mechanism really serve the desires of the people? The price mechanism actually has many limitations. Below, they are discussed:

No fair and effective distribution of goods and services:

Demand is made competitive in a capitalist economy by those who have income and are ready to spend it and not by those who need only but do not have the resources they need. The lucky few with large incomes are able to manipulate manufacturers to manufacture the products they want. On the other hand, the poor often have to go without the essentials of the life of the existence of inequality of incomes. When the poor have to die on urban footpaths, vast amounts are spent on gala feasts. Therefore, according to their needs, the capitalist system does not bring about an equal and fair distribution of goods and services among people.

Instead of perfect competition, monopolistic tendencies:

Costs, wages, and income are expected to be decided in a free market through demand and supply. In fact, however, markets are not open and competition is not perfect. A few influential producers, who are often called monopolists, decide and impact prices. For example, a monopolist may set a high price. There may be a divergence between demand and supply as a consequence of the existence of imperfect competition.

Change Fashion, Preferences, etc:

In addition, preferences and fashions can change rapidly and in some industries, there might be overproduction and underproduction in others as a result. Often, demand could have changed again by the time the required supply adjustment takes place. Therefore, capitalist output and resource allocation cannot, because of the presence of monopoly elements and also because of periodic market depression and unemployment, be successful. Under capitalism, optimum production and minimum cost cannot actually take place.

Adverse Effect on Advertisement on Consumers:

Consumers themselves can be at fault occasionally. They may require goods and services that do not provide actual value, but which may be intended to demonstrate power or prestige. They can also demand products that are dangerous, sometimes. Many times, a man winning prefers cheap. Novel detective to a decent script. People can need inexpensive films and liquor that appear to ruin their tastes and morals. In this regard, the potential adverse effects of ads on customers can be stated. It has been found possible to sell any product, however poor or inferior, through the medium of advertising. It is by an advertisement that many have had, and in an ‘open’ market economy, positively dangerous drugs and medicines and other items are sold. The autonomy of the customer is therefore lost.

Does not work properly during periods of war and shortages:

Another drawback of the price system is that, during wartime or in times of real shortages, it does not work properly. The price mechanism does not ensure that national income is distributed satisfactorily among the different parts of the population. This generates massive conspicuous disparities in the distribution of national revenue. Thus, while the price mechanism of the capitalist economy may lead to the maximization of national income, it is not sufficient for national income to automatically maximize national welfare as well.

Neglect of Social Goods:

The price mechanism also takes only individual requirements into account, whereas it does not supply adequate quantities of social goods such as education, health, water, electricity, gas, telephone, post and telegraph, and transportation, etc. If any society leaves the supply of such public goods to the price system, it may be abused by the market and thus by customers.

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