1 Which one of the following is a function of the price mechanism?

A To create an incentive for producers to decrease the quantity supplied

when the price increases.
B To encourage government intervention to allocate scarce resources.
C To provide a signal to producers and consumers about changes in supply
and demand when prices change.
D To ration scarce resources by allowing prices to decrease when demand
increases.
(Total for Question 1 = 1 mark)
2 The diagram shows the market for salt.

(a) P was the maximum price set by the government and this has now been removed. The most
likely outcome is that the (1)
A price will rise
B supply curve will shift to the right
C quantity demanded will rise
D quantity supplied will fall
3 (a) One function of the price mechanism is to (1)
A create an incentive to decrease production when the price of a good rises
B ration scarce resources by causing the price to rise when demand for a product rises
C signal to producers that demand is rising when the price of a good falls
D encourage government intervention to correct market failure
4 One function of the price mechanism is to (1)
A encourage government intervention to allocate resources
B avoid price fluctuations
C ration scarce resources by allowing the price to fall when demand for a product rises
D create an incentive to increase the quantity supplied of a product when price rises
5.