profit and loss

Question 1

what is price mechanism

Answer 1

decisions made by businesses to interact to determine the allocation of scarce resources between competing uses

Question 2

rationing function

Answer 2

prices ration scarce resources when demand outstrips supply

when there is a shortage of a product the price will rise and deter some consumers from purchasing the product

Question 3

signalling function

Answer 3

if prices are rising because of stronger demand this is a signal to supplies to expand output if they can

the ability to expand production depends on the price elasticity of supply

Question 4

incentive function

Answer 4

higher market prices act as incentive to raise output because the suppliers want to make a higher profit

Question 5

price mechanism stimulates:

Answer 5

investment, higher productivity, improves non-price aspects of goods and services