The most fundamental function of prices in a market economy is to provide
A)The data necessary to calculate rates of inflation.
B)The basis for the calculation of sales tax.
C)Information about the relative scarcities of resources and goods and services.
D)Maximum profits to producers.

Question

Quizplus · Accepted Answer

Prices in a market economy serve as signals to buyers and sellers about the availability and scarcity of goods and services. Prices that are high indicate that a good or service is relatively scarce and in demand, while low prices indicate that a good or service is abundant and/or unwanted. This information guides consumers in their choices and businesses in their production decisions. Prices do not exist solely to maximize profits for producers, nor do they solely provide data for calculating inflation or sales tax.

The Most Fundamental Function of Prices in a Market Economy