To promote economic efficiency, government should
A)keep all prices as low as possible.
B)keep all prices high so that people will save more money.
C)allow the market to set low prices for abundant goods and high prices for scarce goods.
D)never interfere with firms' price setting powers.

Question

Quizplus · Accepted Answer

Allowing the market to set low prices for abundant goods and high prices for scarce goods promotes economic efficiency by encouraging consumers to conserve on scarce goods and consume more of abundant goods, while at the same time encouraging producers to allocate resources to the production of scarce goods. This mechanism ensures that resources are efficiently allocated to the goods that are most in demand, while at the same time encouraging innovation and production of goods that are scarce.

To Promote Economic Efficiency, Government Should