It refers to the way and law that prices regulate social and economic life.

The so-called price mechanism refers to the formation and operation mechanism of market prices that are interrelated and restricted with supply and demand in the process of competition. Price mechanism includes price formation mechanism and price adjustment mechanism.

Conditions for price mechanism to regulate economy:

1 Each economic unit exists as an independent economic entity.

2 Existence market

3 completeness of market competition

[1] The role of price mechanism in regulating economy

1 as an indicator reflects the supply and demand of the market.

Price changes can adjust demand.

Price changes can adjust supply.

Price can make the resource allocation reach the optimal state.

The market mechanism works through the price mechanism.

If the market mechanism wants to play a regulatory role, it must be successfully realized through the price mechanism. This is because: (1) price is the disseminator of economic information. All kinds of economic information are provided and transmitted from all fields of social production and all aspects of social life. Price change is a mirror reflecting social and economic activities and a barometer of the operation of market economy. Price is the link of people's economic communication. The continuous circulation of social products among various economic units and individuals can only be achieved through price. ⑶ Price is the regulator of people's economic interests. In a market economy, any price change will lead to the redistribution and combination of economic interests among different departments, regions, units and individuals.

(1) The price mechanism can solve what and how much the society produces; How to produce; For whom to produce these three basic questions.

1. What and how much an enterprise produces must be market-oriented, that is, market supply and demand must depend on market prices. If a product in the market is too scarce and too expensive relative to its use, it means that the supply is in short supply, producers and operators have the incentive to produce and operate the product more, and consumers have the incentive to use or not use the product less, which will lead to a price decline until its scarcity meets its use. If a product is too rich relative to its uses, it means that the supply exceeds the demand, and its price is too low, consumers have the incentive to use this product more, while producers and operators have the incentive to produce less or not. This will lead to an increase in prices until its scarcity meets its purpose. Therefore, producers and operators decide what to produce and how much to produce, which is based on market price signals.

2. After deciding what to produce and how much to produce, enterprises should solve the problem of how to produce, that is, how to allocate resources. Whether to use more labor or capital (including machinery and equipment); Whether to use ordinary materials or high-grade materials; Whether to use general technology or high technology. The key is to see whether the cost price is high or low. If the cost of using capital is lower than the cost of using labor, then use more capital and less labor; If the cost of adopting general technology is higher than that of adopting higher technology, then adopting higher technology. When an enterprise decides how to produce a problem, it must pass cost accounting and choose the scheme with the lowest cost for production. Through competition, we can improve efficiency and reduce costs, thus increasing market share and gaining more profits.

3. After the product is produced, how to distribute it between people, that is, for whom. Enterprises are most concerned about who can afford their own products, which depends on the income of various groups, families and individuals in the market. The change of product price and the price of production factors as income will determine the price level and payment structure that people are willing to pay for products, so that products can be distributed among resource owners. People with more or more resources will have money and can buy a lot of products. People with few resources will not be rich and can only buy fewer products. Therefore, price can allocate the output of products among resource owners.

(b) Price can adjust various income distributions.

Price can determine and adjust the income distribution among industries, industries, enterprises and enterprises.

First of all, the market price can determine the income difference between industries. In the past, if the product price of the primary industry was relatively low and the product price of the secondary industry was relatively high, the income of the primary industry was less than that of the secondary industry. After constant price adjustment, the price of products in the primary industry has gradually increased, while the price of products in the secondary industry is relatively stable, and some of them have declined. The income of the primary industry increased, while the income of the secondary industry decreased. This is the first income distribution between industrial sectors due to price.

Secondly, the market price can determine the income difference between industries and enterprises. For example, in the secondary industry, the price of electronic products is high, the profits are large, and the income of industries and enterprises is more. Other industries and enterprises have relatively low product prices and less income, which is the secondary distribution of income generated by prices between industries and enterprises.

Thirdly, the market price must redistribute the income distributed to enterprises through wages, interest and profits, which is the third distribution.

(3) The price mechanism also directly affects consumers' buying behavior.

Under the condition of constant income, the price of a certain product rises, while the price of related products is stable or falling, which will prompt consumers to buy more related products and buy less or not to buy a certain product. The decline in the price of a certain product and the increase in the price of related products will prompt consumers to buy more products and less or no related products.

Increasing consumer income and relatively stable prices will prompt consumers to increase their consumption. If the growth of consumers' income is lower than that of prices, consumers' actual income will decrease, which will affect their consumption level and reduce their consumption accordingly, but the means of subsistence will not decrease, while the means of enjoyment and development will decrease accordingly. If the growth of consumers' income is higher than that of prices, the consumption level and consumption will increase accordingly. In addition to increasing the consumption of living materials, it will also increase the consumption of enjoyment materials and development materials.

The stable prices of means of subsistence and the declining prices of means of enjoyment and development will prompt consumers to improve their consumption structure and increase their consumption of means of enjoyment and development. When the price of means of subsistence rises or falls, the purchase and consumption of means of subsistence will not change much because of the small elasticity of demand for means of subsistence. If the prices of enjoyment materials and development materials rise or fall, their demand will decrease or increase accordingly because of their greater elasticity of demand.