When resources are fixed, increasing the production of one good causes a(n) (increase/decrease) in the production of the other.

When resources are , increasing the production of one good causes a decrease in the production of the other.

When resources are allocated in such a way that it is possible to increase the production of one good only by decreasing the production of another, then the allocation of resources is:Multiple choice question.efficient.inefficient.impossible.suboptimal.

A(n) to producers lowers the cost of producing. (Enter one word in the blank.)

1 In which one of these situations would the price mechanism allocate moreresources to the production of a particular good?A An increase in VATB A decrease in the price of a substituteC A shortage of raw materialsD Introduction of more efficient production methods (1 mark)2 In which one of these situations would the price mechanism allocate fewerresources to the production of a particular good?A A successful advertising campaignB Increasing consumer wealthC An increase in the price of a complementD A government subsidy on the good (1 mark)3 Explain the ‘rationing’ function of price. (5 marks)4 Explain the ‘incentive’ function of price. (5 marks)5 Explain the ‘signalling’ function of price. (4 marks)6 With the help of a diagram, explain how the price mechanism resolves thebasic economic problem. (9 marks)

Explain one reason why average fixed costs change as excess capacity increases.