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Question 0

What is the rationing device?

Answer 0

1) resources are scarce, meaning good and services are in limited supply. These are allocated to highest buyer. Price will rise and fall until eq. is reached between quantity demanded and quantity supplied.

Question 1

Define price mechanism?

Answer 1

The price mechanism is the way price responds to changes in demand or supply for a product or factor input, so that a new equilibrium position is reached in a market.

Question 2

What is an incentive device?

Answer 2

2) rising prices act as an incentive to firms to produce more of a good or service, since more profits can be earned.

Question 3

What is a signalling device?

Answer 3

3) The price mechanism indicates changes in the conditions of demand or supply. For example an increase in demand would cause companies to raise their prices and encourage them to increase supply and vice versa.