The price mechanism helps to allocate resources efficiently because
an increase in consumer demand for a product raises its price, signalling to firms to reallocate factors of production towards its output.
it guarantees that merit goods and public goods are always provided at their socially optimum levels of consumption.
it automatically prevents firms with monopoly power from charging prices above marginal cost.
it distributes essential goods and services to households based primarily on their developmental needs rather than their ability to pay.
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.