Unit 13 Flashcards
1
Q
What is the incentive function of the price mechanism?
A
The incentive function is when changes in price encourage consumers and producers to change the quantity that they buy and sell. A rise in price encourages consumers to purchase less and producers to produce more.
2
Q
What is the rationing function of the price mechanism?
A
The rationing function is when changes in price lead to more or less being produced, so increasing the quantity demanded by consumers.
3
Q
What is the signalling function of the price mechanism?
A
The signalling function of the price mechanism is when changes in price give information to producers and consumers which influence their decisions to consume and produce.
