The rationing function of prices refers to
A) the situation when government must intervene in a market when there is a large shortage or surplus.
B) the synchronization of decisions by buyers and sellers that leads to an equilibrium.
C) the synchronization of decisions by buyers and sellers through the direction of government agencies.
D) the situation when only the rich get the goods they want.

Question

Quizplus · Accepted Answer

The rationing function of prices refers to how prices direct scarce resources towards their most valued uses by synchronizing the decisions of buyers and sellers that lead to an equilibrium. As prices rise due to a shortage, buyers are rationed by bidding up the price, which incentivizes sellers to increase production. As prices fall due to a surplus, sellers are rationed by lowering the price, which incentivizes buyers to purchase more. This results in a market equilibrium where supply and demand are balanced.

The Rationing Function of Prices Refers to