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Economics - functions of price

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    Does anyone know what rationing incentive and signaling functions of price is? Help appreciated, thanks.
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    they're the 3 functions of price.

    rationing means that's how goods are spread out/distributed between people (by people's ability to afford them)

    signalling, i think, is where, say if a firm is making supernatural profits, it acts as a signal to others to enter into the market and compete the profits down (that's why under perfect competition supernatural profits only occur in the short-run)

    and incentive is obvious... it's people's reason for doing stuff, e.g. you work for a price, not out of the kindness of your heart (ignoring charity workers or whatever)
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    (Original post by Dan1992)
    they're the 3 functions of price.

    rationing means that's how goods are spread out/distributed between people (by people's ability to afford them)

    signalling, i think, is where, say if a firm is making supernatural profits, it acts as a signal to others to enter into the market and compete the profits down (that's why under perfect competition supernatural profits only occur in the short-run)

    and incentive is obvious... it's people's reason for doing stuff, e.g. you work for a price, not out of the kindness of your heart (ignoring charity workers or whatever)
    Genius - thank you!!!
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    (Original post by Dan1992)
    they're the 3 functions of price.

    rationing means that's how goods are spread out/distributed between people (by people's ability to afford them)

    signalling, i think, is where, say if a firm is making supernatural profits, it acts as a signal to others to enter into the market and compete the profits down (that's why under perfect competition supernatural profits only occur in the short-run)

    and incentive is obvious... it's people's reason for doing stuff, e.g. you work for a price, not out of the kindness of your heart (ignoring charity workers or whatever)

    Hey do u know what the price mechanism is? Like the definitionnnn?
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    (Original post by jak67m)
    Hey do u know what the price mechanism is? Like the definitionnnn?
    don't trust me on this, but i think that the functions of price and the price mechanism are the same thing... and that the price mechanism is just how those 3 things create markets that connect sellers and buyers

    if this is the case then a good defintion i guess could be:

    the price mechanism is the way in which the three functions of price (rationing, incentivising, and signalling,) allow buyers and sellers to come together and form markets.

    again don't trust this unless someone can confirm it though because i'm not 100%
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    according to the user Smiz AQA uses price-mechanism and the functions of price interchangably so it's probably safe to use the definition i gave you =)

    (@jak67m)
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    I'm just going to reply without reading other posts to test my own knowledge.

    Signalling function is the price signalling for increases or drops in supply for producers.
    Incentive function is , uhm.... For example, consumers like a certain type of fashion due to a change in season (it's winter and consumers want winter hats), this creates an incentive for producers to produce more winter hats???:confused:
    Rationing is producers adjusting prices of products in line with targetted consumers' social class

    Edit: Compared it, mostly right, I think.....
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    Incentive function is as price rises firms increase production/new firms enter the market to capitalise on the high prices (which then of course creates excess supply thus lowering the price again, Smiths 'invisible hand' init). This is why the supply curve slopes upward.
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    (Original post by Jono404)
    Incentive function is as price rises firms increase production/new firms enter the market to capitalise on the high prices (which then of course creates excess supply thus lowering the price again, Smiths 'invisible hand' init). This is why the supply curve slopes upward.
    I get it now, that's why housing is an 'incentive good'.

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Updated: January 13, 2010
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