From society's point of view, the economic function of proﬁts and losses is to
A) promote the equal distribution of real assets and wealth.
B) achieve full employment and price level stability.
C) contribute to a more equal distribution of income.
D) reallocate resources from less-desired to more-desired uses.

Question

Quizplus · Accepted Answer

The economic function of profits and losses is to reallocate resources from less-desired to more-desired uses. This is achieved through the signaling effect of profits and losses on resource allocation decisions made by producers and consumers in the market. Profitable firms attract more resources to continue producing the goods and services that consumers demand, while firms that generate losses lose resources and may exit the market. This process helps in allocating resources efficiently and promoting economic growth. Neither A, B or C correctly describe the economic function of profits and losses.

From Society's Point of View, the Economic Function of Proﬁts