Question 6
[Maximum number: 1]
What is not a function of the price mechanism?
A
to act as a signal to firms when allocating resources
B
to maximise consumer surplus
C
to provide an incentive to firms to produce goods
D
to ration scarce resources
CAIE A-Level Economics 2.4.4 Price Functions in Resource Allocation
Practise explaining how price changes signal preferences and scarcity, ration limited output and incentivise resource movements, then judging limits of market allocation.
How this is tested
- distinguish signalling, rationing and incentive functions in a stated market-price change
- trace how higher expected profit attracts factors and expands output after stronger demand
- evaluate allocation using information, ability to pay, public goods and other market failures