Factors Of Supply And Demand

Question 1

4 main functions of price mechanism

Answer 1

Allocate, rationing, signalling, insensitives

Question 2

Allocating

Answer 2

Allocating scarce resources among competing users

Question 3

Rationing

Answer 3

Prices serve to ration scarce resources when market demand outstrips supply

Question 4

Signalling

Answer 4

Prices adjust to demonstrate when recourses are required and when they aren’t, eg sunglasses price go up in the summer

Question 5

Incentives

Answer 5

When the price of a product rises, quantity supplied by resources does aswell

Question 6

Price discrimination

Answer 6

Selling the same products are different prices to two different buyers in order to maximise profits and sales

Question 7

Peak load pricing

Answer 7

Making it’s more expensive at busy hours or times

Question 8

What order does the price mechanism take when there is excess supply or demand

Answer 8

1 - signal there is excess demand and they need to decrease or increase output
2 - incentivise producers to increase or decrease output to regain losses
3 - ration scarce resources by encouraging / discouraging consumption
4 - allocative scarce resources efficiently - achieving allocative efficiency

Question 10

When is price elastic

Answer 10

When demand is over 1

Question 11

When is price inelastic

Answer 11

Demand is under 1