8.1 the market mechanism, market failure and government intervention in markets

Question 1

what are the functions of price

Answer 1

incentive function
signalling function
rationing function

Question 2

what are the advantages of price mechanism

Answer 2

allocatively efficient
no time costs - no one has to be paid to monitor it
free from bias, not governed by one human, but lots of different agents interacting
the process is efficient as prices are as low as possible
consumers have control over what producers make

Question 3

what are disadvantages of the price mechanism

Answer 3

some goods morally shouldn’t be produced through this way eg organs
missing market for some goods - public goods
increased inequality due to disparity between low and high skilled workers
no moral overlay or beliefs