Th1.2: Price Mechanism Flashcards
1
Q
What does the price mechanism do and where?
A
allocates resources in a free market economy
2
Q
What is price determined by?
A
the interactions of demand and supply, which determines how much is bought and sold and by whom
3
Q
When do prices rise?
A
when buyers want to purchase more than suppliers want to sell, encouraging suppliers to sell more as they will make a higher profit
4
Q
What are the 3 functions of the price mechanism?
A
rationing function
signalling function
incentive function
