The economic function of proﬁts and losses is to
A) bring about a more equal distribution of income.
B) signal that resources should be reallocated.
C) eliminate small ﬁrms and reduce competition.
D) tell government which industries need to be subsidized.

Question

Quizplus · Accepted Answer

The economic function of profits and losses is to signal that resources should be reallocated. When a firm earns profits, it indicates that resources are being used efficiently and effectively, and this leads other firms to enter the market and compete. On the other hand, when a firm incurs losses, they signal that resources are being wasted and that the firm should re-allocate these resources to more profitable ventures. This dynamic process helps to allocate resources efficiently and improve overall economic welfare.

The Economic Function of Proﬁts and Losses Is to