Theme 1.2.7 The price mechanism (unit 13) Flashcards
1
Q
What is the price mechanism?
A
It is the way a market economy allocates resources between conflicting uses.
2
Q
What is the rationing function?
A
It is when changes in price lead to more or less being produced, so increasing or limiting the quantity demanded by buyers.
3
Q
What is the incentive function?
A
It is when changes in price encourage buyers and sellers to change the quantity they buy and sell. A rise in price encourages buyers to purchase less and sellers to produce more and visa versa.
4
Q
What is the signalling function?
A
It is when changes in price give information to buyers and sellers which influence their decisions to buy and sell.
