Th1.2: The Signalling Function

Question 1

What acts as a signal and where?

Answer 1

the price mechanism where resources should be used

Question 2

What happens when prices rise?

Answer 2

producers move resources into the manufacture of that product

Question 3

What does the change in price signal to suppliers and consumers?

Answer 3

that market conditions have changed so they should change the quantity bought/sold

Question 4

What happens when price equilibrium moves?

Answer 4

output equilibrium moves with it