1.2.7 Price mechanisms

Question 1

Price mechanism

Answer 1

The decisions of consumers and businesses interact to determine the allocation of resources

Signalling
Incentive
Rationing

Question 2

Signalling

Answer 2

Prices adjust to demonstrate where resources are required

Question 3

Incentives

Answer 3

through choices, consumers send information to producers about their changing nature of needs and wants

Question 4

Rationing

Answer 4

A rising price can reduce the quantity demanded of a good

Question 5

Invisible hand

Answer 5

Adam Smith described how the invisible hand of the market operated in a competitive market through the pursuit of self interest to allocate resources in society’s best interest