The market system communicates changes in supply and demand and elicits appropriate responses from businesses and resource suppliers.This is known as the:
A)rationing function of prices.
B)guiding function of prices.
C)monetary function of prices.
D)circular flow of income.

Question

Quizplus · Accepted Answer

The guiding function of prices refers to the ability of prices in a market economy to communicate information about changing supply and demand conditions. Businesses and resource suppliers respond to these changes by adjusting production and pricing decisions, leading to an efficient allocation of resources. The rationing function of prices refers to the ability of prices to allocate scarce goods and services to those who are willing and able to pay for them. The monetary function of prices refers to the role of prices as a medium of exchange and unit of account. The circular flow of income refers to the flow of money and goods between households and businesses in a market economy.

The Market System Communicates Changes in Supply and Demand and Elicits