Micro essays

Question 1

Functions of price mechanism in allocating housing.

Answer 1

• prices perform a signalling function and adjust to demonstrate where resources are required
• prices act as an incentive function for consumers
  -prices perform a rationing function

Question 2

Uk is considering introducing a new maximum price for energy. Discuss micro effects of this on energy producers and consumers

Answer 2

Maximum price is a price set below market equilibrium
- energy prices are more affordable for consumers
- contraction in supply or decrease in supply
E- depends on how far below maximum price is set below market equilibrium, depends on PES of energy as well as PED, government failure (could lead to distortion of price signals or unintended consequences)

Question 3

Likely reasons why prices of treatments in private sector hospitals are increasing

Answer 3

• ageing population
• migration
  -medical technology advancements
  E - other factors could instead reduce price such as subsidies, PED may be more elastic given improvements to NHS