The rationing function of the price mechanism as a result of a price rise is associated with suppression of demand along the demand curve. The demand on scarce resources is high which results to increase in prices for the scarce resources, hence a discouraging such demand and supporting conservation of this resources. Therefore, the greater the scarcity, the greater the price and consequently, more of this resources are conserved.

Signalling function of the price mechanism on the other hand tends to cause shifts in supply and demand curve. Changes in prices send contrasting signals to consumers and producers.Increase in prices is good for the producers but unfavorable to the producers. The consumers decrease the demand on goods while producer are attracted to the market. A decrease in prices is favorable to the consumers while its unfavorable for the producers.Consumers increase demand on goods while produces exit the market.