Definition
- Signalling function
- The signalling function is the way a change in price tells buyers and sellers that a good has become scarcer or more plentiful.
Example
Can you think of an example of signalling function?
House prices in one town rise faster than anywhere else. Builders read that as a sign that homes are wanted there, and some buyers read it as a sign to look in the next town.
Test yourself
Can you name the three functions of a price?