What is NOT a function of the price mechanism in a market economy?
Select ONE answer:
- to act as an incentive for supply to respond to changes in demand
- to ensure there is an even distribution of income
- to indicate changes in consumer tastes and preferences
- 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
- The price mechanism provides an incentive (via profits) for firms to adjust their supply to match changes in consumer demand.
- 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.
- The price mechanism does signal consumer preferences, with more popular products rising in price while less popular products fall in price.
- The price mechanism allocates resources to the production of products in high demand.
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