Price mechanism Flashcards
1
Q
Incentive function
A
where an increase in price causes suppliers to produce and sell more in the hopes to increase profits
2
Q
Price mechanism
A
Adam smith - referred to it as an invisible hand which allocates resources through the interaction of supply and demand
3
Q
Rationing Function
A
Limited resources are allocated to those who are willing to pay a high enough price
4
Q
Signalling function
A
Where a change in prices signal buyers and sellers to change their buying and selling patterns
5
Q
3 functions of the price mechanism
A
Signalling
Incentivising
Rationing
