Price and Profit

What is signalling

The prices provide information to buyers and sellers - the products rarity, or its worth, or some other information important to both sides

What is incentive

Relative prices (Pepsi v coke) give incentives for people to change their economic behaviour. Likewise, prices can give an incentive for suppliers to enter the market

What is rationing

Prices deter individuals from consuming- can be important in preventing resources from depleting. Alternatively, lowering price encourages people to consume. The higher price less consumer are likely to produce it

What is allocative

Prices shift resources between markets, away from those with excess supply and towards those with excess demand.

What are the 4 ways price and profit work in the economy

• Signalling

• Incentives

• Rationing

• Allocative

What do profits do

They alter decisions made by agents

What do prices do

They allocated resources