In a free market economy, a sudden decrease in the supply of lithium leads to a sharp increase in its market price. Which of the following best describes how this price rise performs the rationing function of the price mechanism to allocate this scarce resource?
It provides a signal to alternative battery manufacturers to invest in research and development for lithium-free alternatives.
It contracts quantity demanded, ensuring the available lithium is allocated to those buyers who are willing and able to pay the most for it.
It shifts the demand curve for lithium to the left, which automatically eliminates the initial shortage and stabilizes the market.
It acts as an incentive for existing lithium miners to increase their production capacity to capture higher profits.
31 exam-style questions on OCR A Level Economics The allocation of resources. Each one has a worked solution and a mark scheme showing where the marks go.