Unit 8:The Market Mechanism, Market Failure & Government Intervention in Markets

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4 Terms

1
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What are the three functions of the price mechanism?

-Rationing

-Incentive

-Signalling

2
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How do prices coordinate decisions in a market economy?

Prices convey information, incentivise responses, and ration scarce resources

3
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What are the advantages of the price mechanism?

-Efficient allocation

-Consumer sovereignty

-Decentralised decision-making

4
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What are the disadvantages of the price mechanism?

-Can cause inequality

-May ignore externalities

-Can commodify vital services