How the Price Mechanism Works in Markets

The video explains the price mechanism in markets, highlighting its three main functions: incentive, rationing, and signalling. The incentive function motivates agents to adjust their behavior to reach equilibrium. The rationing function allocates limited supply by adjusting prices, excluding some consumers. The signalling function informs market participants of changes in conditions. Understanding these functions is crucial for comprehending how markets operate and the impact of price interventions.

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