3.1.5 (MMMFGI) Allocation Of Resources

Question 1

How is the basic economic problem resolved

Answer 1

through price mechanisms

Question 2

Explain the price mechanism

Answer 2

resources are allocated as efficiently as possible to those who VALUE them the most . The PM shows how the descisions of buyers and sellers are harmonised in the market economy

Question 3

State the three function of the price mechanism

Answer 3

rationing
signalling
incentive

Question 4

Explain Rationing

Answer 4

• higher prices ration D to meet S
• if a resource being diminished , price of the good using it will increase
• less people willing to pay for the good at this price
• rations good so allocated to those valuing it the most

Question 5

Rationign in simple terms

Answer 5

increasing the price of g/s if it is being diminished , less people willing so allocated only to those who value it most

Question 6

Explain Incentive

Answer 6

increasing price, so producers can increase output to match S with D but incentive to produce more as they’ll make more revnue +profit

Question 7

Explain Signalling

Answer 7

Price Mechanisms signals to consumers there’s been a change in D/S
- demand decreasing showing prices are falling indicating producers should cut back on production

Question 8

Give signals of excess demand

Answer 8

excess queuing
competition between buyers
waiting lists