price mechanism Flashcards
1
Q
3 functions of price mechanism
A
rationing
signalling
incentive
2
Q
rationing function
A
when resources are scarce, price is high and supply is rationed
3
Q
signalling function
A
demand increases and so does price, signalling to producers to increase supply and vice versa
4
Q
incentive function
A
as price rises, it motivates producers to supply more to increase profits
