Price Mechanism

Question 1

Price mechanism

Answer 1

Interaction of buyers and sellers in free markets enables goods services and resources to be allocated by prices

Question 2

Rationaling function

Answer 2

Whenever resources are particularly scarce demand exceeds supply and prices are driven up. The effect of such a rise is to discourage demand and conserve resources.

Question 3

Signalling function

Answer 3

Price changes send contrasting messages to consumers and producers about wether to enter or leave a market. Price higher consumers buy less supply higher and vice certain

Question 4

Incentive mechanism

Answer 4

Something that motivates a producer or consumer to follow a course of action or to change behaviour. Higher prices incentive for producers to supply more because chance of profit.