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Market Price by Mind Map: Market Price

1. The signalling function

1.1. Rising prices give a signal to consumers to reduce demand or withdraw from a market completely, and they give a signal to potential producers to enter a market. And conversely.

2. The rationing function

2.1. Price is used to ration the limited quantity of a good among the various buyers who would like to purchase it.

3. The incentive (motivation) function

3.1. Higher prices provide an incentive to existing producers to supply more because they provide the possibility of more revenue and profit increase.

3.2. Every economic system provides solutions to four questions: what goods and services will be produced; how they will be produced; for whom they will be produced; and how they will be allocated between consumption .