A Level Economics AQA Practice Exam

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What does the rationing function of prices achieve?

  1. Equalizes quantity demanded and supplied

  2. Generates profit for firms

  3. Increases prices for consumers

  4. Stimulates local markets exclusively

The correct answer is: Equalizes quantity demanded and supplied

The rationing function of prices primarily achieves the equalization of quantity demanded and supplied. This mechanism allows the market to allocate resources efficiently. When a product is in high demand but limited supply, the price tends to rise. This increase discourages some consumers from purchasing the product, while simultaneously encouraging producers to supply more, ultimately creating a balance or equilibrium. In contrast, while profit generation for firms is a positive outcome of this mechanism, it is not the primary function of price rationing. Additionally, an increase in prices can be a result of the rationing function but is ultimately a byproduct rather than the main purpose. Lastly, the stimulation of local markets may occur, but the rationing function serves a broader market efficiency role rather than being confined to local markets exclusively.

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