Chapter 13 Flashcards
1
Q
What’s the price mechanism?
A
Allocates resources between conflicting uses
2
Q
What are the 3 main functions of the price mechanism?
A
The rationing function
The signalling function
The incentive function
3
Q
What’s the rationing function?
A
Resources are scarce so are rationed between competing uses. e.g
high demand, low supply——> price + ———> demand -
4
Q
What’s the signaling function?
A
The price is used as a signal for both the consumers and suppliers to determine whether they should increase supply/ demand.
5
Q
What’s the incentive function?
A
Price acts as an incentive to supply/ demand more.
