A sudden decrease in the supply of agricultural crops due to adverse weather conditions leads to an increase in their market price.
Which one of the following combinations correctly describes how the signalling, rationing, and incentive functions of the price mechanism operate in this scenario?
| Signalling function | Rationing function | Incentive function | |
|---|---|---|---|
| A | Signals to consumers that crops are now more abundant | Rations crops to those with the lowest willingness to pay | Encourages farmers to reduce production of alternative crops to focus on this crop |
| B | Signals to farmers that there is a shortage of crops at the old price | Rations crops to consumers who are willing and able to pay the higher price | Incentivises farmers to increase supply of these crops in the next planting season |
| C | Signals to farmers that there is a surplus of crops | Rations crops equally among all consumers regardless of income | Incentivises consumers to increase their consumption of these crops |
| D | Signals to consumers that crops are scarcer | Rations crops by lowering the market price to clear the market | Incentivises farmers to exit the agricultural sector entirely |
A
B
C
D
