2.4.4—Price functions in allocation

A price rations by limiting access when demand exceeds supply, signals information about scarcity and preferences, and incentivises consumers and producers to change behaviour.

The same price can perform all three functions, though distributional effects may make market rationing unequal. Taxes and subsidies alter incentives by changing relative prices.

A higher electricity price signals scarce supply, rations consumption and encourages households to insulate while attracting investment in generation.

A price signal is not a guarantee that every market participant receives complete information or can afford the good.