In a market economy, the incentive function of the price mechanism means that
a rise in price due to a shortage will allocate scarce resources to those buyers who are willing and able to pay the most.
higher prices and the prospect of greater profits encourage firms to increase production and attract new entrants into the industry.
price changes act as a source of information to buyers and sellers, indicating where surpluses or shortages exist.
an increase in price causes demand to expand, making the product more accessible to low-income consumers.
