1.2.7 Price Mechanism
1 A rise in petrol prices may lead to consumers finding alternative means of transport in order to
cut down on their petrol consumption. This is due to
A petrol and cars being in joint supply.
B the PED of petrol being positive.
C the rationing function of the price mechanism.
D the positive cross elasticity of demand between petrol and car journeys.
2 Which of the following illustrates the rationing and incentive functions of the price mechanism?
Price change Rationing function Incentive function
A Rise More supplied Less Demanded
B Fall More supplied More demanded
C Rise Less Demanded More supplied
D Fall More demanded More supplied
3 Which of these is NOT an explanation of why supply increases when prices rise?
A Because in the long run, supply is price elastic
B Because of the signalling function of the price mechanism
C Because producers know that wants are infinite
D Because prices are an incentive function in the price mechanism
4 One function of the price mechanism is to
A ensure that no surpluses of a good is produced.
B reveal where best the government can intervene as they have limited resources.
C maintain price stability.
D signal changes in demand for goods and services.
5 Which of the following shows how the price mechanism helps to allocate resources efficiently?
A It ensures lower rewards are paid to factors of production when demand for their
product rises
B The invisible hand ensures a group of people acting in their own self-interest will
lead to a socially efficient outcome
C It promotes competition in the market
D It distributes resources to those in most need of them
Copyright Tutor2u www.tutor2u.net/economics
1 A rise in petrol prices may lead to consumers finding alternative means of transport in order to
cut down on their petrol consumption. This is due to
A petrol and cars being in joint supply.
B the PED of petrol being positive.
C the rationing function of the price mechanism.
D the positive cross elasticity of demand between petrol and car journeys.
2 Which of the following illustrates the rationing and incentive functions of the price mechanism?
Price change Rationing function Incentive function
A Rise More supplied Less Demanded
B Fall More supplied More demanded
C Rise Less Demanded More supplied
D Fall More demanded More supplied
3 Which of these is NOT an explanation of why supply increases when prices rise?
A Because in the long run, supply is price elastic
B Because of the signalling function of the price mechanism
C Because producers know that wants are infinite
D Because prices are an incentive function in the price mechanism
4 One function of the price mechanism is to
A ensure that no surpluses of a good is produced.
B reveal where best the government can intervene as they have limited resources.
C maintain price stability.
D signal changes in demand for goods and services.
5 Which of the following shows how the price mechanism helps to allocate resources efficiently?
A It ensures lower rewards are paid to factors of production when demand for their
product rises
B The invisible hand ensures a group of people acting in their own self-interest will
lead to a socially efficient outcome
C It promotes competition in the market
D It distributes resources to those in most need of them
Copyright Tutor2u www.tutor2u.net/economics
