In a market economy, the price mechanism plays a critical role in allocating scarce resources through signalling, incentive, and rationing functions. If there is a sudden global surge in the demand for copper, which of the following best explains how these functions operate to reallocate resources?
The increased price of copper acts as an incentive for mining firms to expand production, while rationing the existing copper to buyers who are willing and able to pay the most.
The increased price of copper signals to consumers that copper has become more abundant, while incentivising government agencies to stockpile the resource.
The increased price of copper rations the resource by distributing it equally among all manufacturing sectors, while signalling to producers to reduce their output.
The increased price of copper incentivises buyers to purchase more substitute materials, while rationing the profits of copper producers to prevent market entry.
