The rationing, incentive and signalling functions of prices in allocating resources and coordinating the decisions of buyers and sellers
Prices do three jobs at once: they tell producers and consumers what is scarce, they change behaviour by making some choices more or less attractive, and they limit who can buy a good when supply is tight.
Real World
When a global chip shortage hit in 2021, GPU prices tripled on secondary markets — the higher price signalled scarcity to producers like NVIDIA (who ramped up supply) and rationed chips among consumers willing to pay most.
Exam Focus
Clearly label each function (signal, incentive, rationing) using those exact terms — the mark scheme rewards precise economic vocabulary.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
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