Which one of the following combinations correctly identifies the operation of both the signalling and incentive functions of the price mechanism?
| Price change | Signalling function | Incentive function | |
|---|---|---|---|
| A | Rise | Signals a market surplus | Encourages consumers to purchase more |
| B | Fall | Signals consumer demand has increased | Incentivises producers to expand capacity |
| C | Rise | Signals a shortage of the resource | Incentivises producers to increase supply |
| D | Fall | Signals a shortage of the resource | Incentivises consumers to demand less |
A
B
C
D
378 exam-style questions on AQA A Level Economics 1.8 The market mechanism, market failure and government intervention in markets, covering 1.8.1 How markets and prices allocate resources, 1.8.2 The meaning of market failure, 1.8.3 Public goods, private goods and quasi-public goods, 1.8.4 Positive and negative externalities in consumption and production, 1.8.5 Merit and demerit goods, 1.8.6 Market imperfections, 1.8.7 Competition policy (A-level only), 1.8.8 Public ownership, privatisation, regulation and deregulation of markets (A-level only), 1.8.9 Government intervention in markets, and 1.8.10 Government failure. Each one has a worked solution and a mark scheme showing where the marks go.