Functions Of Price (Week 3) Flashcards
1
Q
What is the rationing/allocating function of price
A
Sharing out what there is - price + quantity/demand
2
Q
What is the signalling function of price
A
Telling consumers and suppliers what is happening (price down = too little in the market + vice versa etc)
3
Q
Example of incentive function of price
A
Price goes up = firms produce more as the value is higher = demand shifts to the right
4
Q
Example of the signalling function if price
A
Excess demand = price is too low (for people to supply, but more people want to buy as cheap) - needs to move to equilibrium
5
Q
What is the incentive function of price
A
The price incentives consumers to buy or producers to supply
