Assessing the Price Mechanism: Advantages and Disadvantages with Examples.

The video tutorial explains the price mechanism's functions: rationing, signaling, and incentive. It contrasts free markets, where the price mechanism allocates resources, with command economies, where a central authority does so. The tutorial discusses mixed economies like the UK, where the price mechanism is used selectively, citing examples like the NHS, armed forces, and blood donation where it may be unsuitable. The conclusion highlights the advantages and limitations of the price mechanism in resource allocation.

What is one of the main functions of the price mechanism?

• To ensure equal distribution of wealth

• To eliminate competition in the market

• To allocate resources based on demand

• To provide free goods to everyone

In a command economy, who decides the allocation of resources?

• A specified group of people

• The price mechanism

• Individual consumers

• Market forces

How do consumers and producers influence the allocation of resources in a free market?

• Through government intervention

• Through their collective actions

• By forming monopolies

• By setting fixed prices

Why might the price mechanism be unsuitable for the healthcare market in the UK?

• It leads to overproduction of healthcare services

• It restricts healthcare to those who can afford it

• It increases government control over healthcare

• It encourages private healthcare monopolies

What is a potential issue with using the price mechanism for the armed forces?

• It would decrease the quality of defense services

• It would increase taxes for military funding

• It could lead to the privatization of the military

• It would reduce the number of military personnel

Why might offering payments for blood donations be counterproductive?

• It could lead to a shortage of blood donors

• It might discourage altruistic donations

• It would increase the cost of blood collection

• It would create a black market for blood

What is a key advantage of the price mechanism in mixed economies?

• It guarantees low prices for all goods

• It allocates resources based on collective demand

• It eliminates the need for government intervention

• It ensures equal wealth distribution