Market Functions

Question 1

Supply increase

Answer 1

Price: decrease
Quantity: increase

Question 2

Supply decreases

Answer 2

Price increases
Quantity decreases

Question 3

Demand increases

Answer 3

Price increases
Quantity increases

Question 4

Demand decreases

Answer 4

Price decrease
Quantity decrease

Question 5

Price Market Mechanism

Answer 5

A concept that the free market will determine an equilibrium in the supply and demand for goods

Question 6

What are the three market functions

Answer 6

Signalling
Incentive
Rationing

Question 7

Signalling function

Answer 7

Demand increases so price increases then supply increases due to profit motive

Question 8

Rationing function

Answer 8

When there is excess demand, to skim off the excess price is increased and a new market clearing price is established

Question 9

Incentive function

Answer 9

When there’s a change in consumer behaviour this motives the producer to change get their behaviour. Higher prices provide an incentive to existing producers to produce more due to profit motive, it’s an extension of supply along the existing supply curve.