Practise explaining how price changes signal scarcity and demand, incentivise producers, and reallocate scarce resources through competitive markets.
Explain how the price mechanism reallocates resources when there is a decrease in the supply of a good.
Answers may include:
- definitions of price mechanism, resources, supply
- diagram to show how a decrease in supply leads to a reallocation of resources
- explanation of how a decrease in supply shifts the supply curve left, creates excess demand at the original price, incentivizes producers to increase price, provides signals and incentives to consumers to change their consumption patterns, switches demand to less expensive goods and causes a reallocation of resources
- examples of goods where a decrease in supply has affected the allocation of resources.
Assessment Criteria
Level 0 (0 marks): The work does not meet a standard described by the descriptors below.
Level 1 (1-3 marks): There is little understanding of the specific demands of the question. Relevant economic terms are not defined. There is very little knowledge of relevant economic theory. There are significant errors.
Level 2 (4-6 marks): There is some understanding of the specific demands of the question. Some relevant economic terms are defined. There is some knowledge of relevant economic theory. There are some errors.
Level 3 (7-8 marks): There is understanding of the specific demands of the question. Relevant economic terms are defined. Relevant economic theory is explained and applied. Where appropriate, diagrams are included and applied. Where appropriate, examples are used. There are few errors.
Level 4 (9-10 marks): There is clear understanding of the specific demands of the question. Relevant economic terms are clearly defined. Relevant economic theory is clearly explained and applied. Where appropriate, diagrams are included and applied effectively. Where appropriate, examples are used effectively. There are no significant errors.