Day: July 20, 2019

What is NOT a function of the price mechanism in a market economy?

Select ONE answer:

1. to act as an incentive for supply to respond to changes in demand
2. to ensure there is an even distribution of income
3. to indicate changes in consumer tastes and preferences
4. to ration scarce resources

Show your workings to arrive at your answer, and explain and justify your reasons:……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple choice question is suitable for Economics KS5 classes.

The answer is 2

1. The price mechanism provides an incentive (via profits) for firms to adjust their supply to match changes in consumer demand.
2. Correct: The price mechanism does not ensure an even distribution of income. Indeed, it can result in some people earning very high incomes while other people receive low or no income.
3. The price mechanism does signal consumer preferences, with more popular products rising in price while less popular products fall in price.
4. The price mechanism allocates resources to the production of products in high demand.

 

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