A sharp increase in the market price of organic cocoa beans prompts chocolate manufacturers to reduce the proportion of cocoa used in their recipes, while encouraging tropical farmers to clear more land to plant new cocoa trees.
Which functions of the price mechanism are illustrated by these two reactions?
Chocolate manufacturers: rationing function; Farmers: incentive function
Chocolate manufacturers: incentive function; Farmers: signaling function
Chocolate manufacturers: signaling function; Farmers: rationing function
Chocolate manufacturers: allocative function; Farmers: joint supply function
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.