In a market system, as one industry expands while another contracts, resources will ﬂow
A) away from the expanding industry toward the contracting one.
B) across industries, driven by the changes in resource prices paid by ﬁrms.
C) toward the industry where the product demand is declining.
D) because resource allocation will have to equalize between the two industries.

Question

Quizplus · Accepted Answer

In a market system, resources will flow across industries, driven by the changes in resource prices paid by firms. As the expanding industry demands more resources, the prices for those resources will increase, incentivizing firms in the contracting industry to switch to the expanding industry, where they can earn higher profits. This movement of resources helps to equalize resource allocation between industries.

In a Market System, as One Industry Expands While Another