Price mechanism Flashcards
(4 cards)
1
Q
What does the market equilibrium show?
A
The price mechanism has allocated efficiently.
2
Q
What are functions that fix a disequilibrium?
A
Signalling
Incentivising
Rationing
3
Q
What do price increases causing a surplus show?
A
It signals to producers less supply is needed.
It incentivises producers to produce less and sell resources to make profit.
4
Q
What do price falls causing shortages show?
A
It signals to producers more supply is needed.
It incentivises producers to produce more to make profit.
It rations resources to discourage consumption.
