Competitive markets automatically adjust to equilibrium without central direction. Government establishes laws and rules and individuals decide what, how and for whom to produce. Individuals plan under the market system and markets coordinate the plans. Governments plan under the command system and individuals are obligated to follow the plan. The Price System Assumptions about individual motivation.
Consumers seek to maximize their satisfaction.
Producers seek to maximize their profit. Optimizing involves adjusting the quantity to the market price. A rise in price informs market participants that an item is more valuable. Rationing of Existing Apartments Price initially rises from P 0 to P 1 since it takes time to adjust the quantity of apartments supplied. Rationing is required because of scarcity.