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How markets and prices allocate resources
Description
A Levels Economics (Unit 1, 2 The Allocation of Resources in Competitive Markets) Mind Map on How markets and prices allocate resources, created by beth2384 on 01/01/2014.
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economics
unit 1
2 the allocation of resources in competitive markets
economics
unit 1, 2 the allocation of resources in competitive markets
a levels
Mind Map by
beth2384
, updated more than 1 year ago
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Created by
beth2384
almost 11 years ago
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Resource summary
How markets and prices allocate resources
The Function of Prices
The Signalling Function
Prices signal what's available
information conveyed allows traders to plan and coordinate their economic activities
If prices signal wrong or misleading information markets will function inefficiently, sometimes breaking down completely
The Incentive Function
Prices create incentives for economic agents (e.g. households and firms)
the incentives make them behave and make decisions in ways that should fulfill their self-interest
The Rationing function (or allocative function)
the changing prices of goods and services relative to each other allocate and ration the economy's scarce resources
they are given to the consumers and firms who are willing and able to pay most of them
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