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

Question

Quizplus · Accepted Answer

The guiding function of prices refers to the way in which prices in a market system communicate information about changes in market conditions and elicit appropriate responses from businesses and resource suppliers. As prices rise or fall, businesses and resource suppliers adjust their behavior accordingly in order to maximize their profits. This dynamic process is what keeps markets efficient and responsive to changes in supply and demand.

The Market System Communicates Changes in Market Conditions and Elicits