Price Mechanism (1.2.7)

Question 1

What does Price Mechanism Mean?

Answer 1

This determines how resources are allocated in the economy. This determines prices. It has 3 main functions.

Question 2

What market would price mechanism be used in?

Answer 2

Free market economy

Question 3

What are the three main functions of Price Mechanism?

Answer 3

Signaling
Rationing
Incentives

Question 4

What is Price Signaling?

Answer 4

Acts as a signal where resources should be used. When Price rises, producers moves resources into manufacture of that product.

Question 5

What is Price Rationing?

Answer 5

When there’s excess demand a business will increase their prices and their goods should be rationed to people who can afford them at a value that is the highest (pay the most)

Question 6

What are Price Incentives?

Answer 6

Incentive for people to work hard as more money=more they are able to buy and so suppliers realise more they produce they more money they get. Low prices are an incentive to buy more of a good.

Question 7

If Demand Increases it shifts to the right signaling to producers to do what?

Answer 7

Increase their supply

Question 8

If supply Increases it shifts to the right signaling to consumers to do what?

Answer 8

Consume more goods and services

Question 9

What is a real life example of prime mechanism being disrupted?

Answer 9

-The coronavirus pandemic disrupted supply chains across the planet to stop the virus spreading