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Islam Economics

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Submitted By usamamalick
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In a free economic order, the decisions about economic activities are not taken by the State Authority. It is the market forces which decide which things to produce and in what quantity, which modes should be adopted to produce them and for whom should they be produced. In other words the market forces, that is, forces of supply and demand play ,a decisive role in the spending, production and distribution and exchange of wealth. It is the price index which brings these forces into operation. For instance, in the field of spending, the consumer will prefer to buy goods from the seller who charges comparatively low price provided that the goods conform to the normal standard. In the production sector, only those things would be produced which would sell at a higher profit margin and it is clear that greater profit can only be earned from the production of those commodities which fetch high price in the market. If the rate of sugar falls and the rate of cement rises, the capitalist would prefers to invest in the cement industry.
The same is the case with exchange and distribution of goods and services. In the exchange of goods price plays decisive role. The seller wants to charge the maximum and the customer wants to pay the minimum price. Eventually the balance of the two forces i.e.,demands and supply determines the price and the process of exchange is completed. Like goods, the wages of the factors of production are also determined by the forces of demandand supply. The factor whose demand is greater than the supply will receive higher wages. The factor whose supply is greater than the demand will receive a lower wage.

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Advantages of the price mechanism * The great benefit of the price mechanism is the invisible hand of price described by Adam Smith. It is able to signal the cost of purchasing a good to the

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