4.1.8.1 How markets and prices allocate resources NOTES

What function of prices in a market economy helps to ration scarce resources?

• Signalling Function

• Incentive Function

• Decentralization Function

• Rationing Function

Which function of prices encourages producers to supply more of a good when prices are high?

• Efficiency Function

• Incentive Function

• Signalling Function

• Rationing Function

What does a rising price in a market economy signal?

• An excess supply

• Decreased consumer interest

• A need to reduce production

• Potential shortages

Which of the following is an advantage of the price mechanism?

• Reduces inequality

• Ensures long-term sustainability

• Decentralization

• Prevents market failure

What is a disadvantage of the price mechanism related to social equity?

• Overproduction

• Short-term focus

• Inefficiency

• Inequality

Which type of goods is typically under-provided by the market?

• Consumer goods

• Public goods

• Luxury goods

• Digital goods

What market condition is indicated by falling prices?

• Increased demand

• Shortage of goods

• Excess supply

• Improved production technology

Which function of prices provides incentives for economic behavior?

• Rationing Function

• Flexibility Function

• Signalling Function

• Incentive Function