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PRICE MECHANISM 1.2.7, image, image, image, (RESOURCES ALLOCATED),…
PRICE MECHANISM 1.2.7
LOCAL, NATIONAL AND GLOBAL CONTEXT
LOCAL
-The coronavirus pandemic caused there to be little food on shelves, the price of food had to increase, to ration off the excess demand.
NATIONAL
-The price of housing differs in the UK as London has a high population relative to the rest of the UK prices rise to ration off the excess demand.
INTERNATIONAL
-1973 OPEC oil embargo, OPEC decreased supply of oil and this caused the price of oil to increase to ration off the excess demand.
RATIONING FUNCTION
-RATIONING FUNCTION- way of rationing goods as when prices rise, some may no longer afford the product and some cannot afford or some are not willing. The limited resources can be rationed to those who can afford/ who value most highly.
SIGNALLING FUNCTION
-SIGNALLING FUNCTION- The price mechanism acts as a signal as to where resources should be allocated. When prices rise, producers start manufacturing more. The change in price indicates to producers that the market conditions have change
INCENTIVE FUNCTION
-INCENTIVE FUNCTION- Incentive to work hard, buyers realise the more money they have the more they can buy. Also acts as an incentive for producers to produce more.
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