The Price Mechanism Flashcards
1
Q
The Rationing Function
A
When changes in price lead to more or less being produced, so increasing or limiting the quantity demanded by buyers
2
Q
The Signalling Function
A
When changes in prices give information to buyers and sellers which influence their decisions to buy and sell.
3
Q
The Incentive Function
A
When changes in price encourage buyers and sellers to change the quantity they buy and sell. A rise in price encourages buyers to purchase less and sellers to purchase more; and vice versa.
