A surge in global demand for cobalt, a key component in high-capacity batteries, leads to a significant increase in its market price. In response, mining corporations redirect investment capital away from copper extraction towards expanding cobalt exploration and processing facilities. This reallocation of resources is an example of:
the rationing function of the price mechanism, as higher prices restrict consumption to buyers with the highest willingness and ability to pay.
the incentive and signalling functions of the price mechanism, as rising prices convey information about consumer preferences and motivate firms to redirect resources.
a market failure arising from the productive inefficiency of shifting resources away from copper mining.
the regulatory function of state planning, which guides corporate investment decisions during commodity booms.
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.