CHAPTER 13 THE PRICE MECHANISM Flashcards
1
Q
Incentive function
A
When changes in price encourage buyers and sellers to change the quantity they buy and sell. A raise in price encourages buyers to purchase less and sellers to produce more; Vice versa
2
Q
Rationing function
A
When changes in price lead to ore or less being produced, So increasing or limiting the quantity demanded by buyers.
3
Q
Signaling function
A
When changes in price give information to buyers and sellers when influence their decisions to buy and sell.
