The incentive function of prices
A) indicates that price increases bring forth more of that resource.
B) is the idea that competitive markets will always clear.
C) applies to all resources.
D) only applies to land.

Question

Quizplus · Accepted Answer

The incentive function of prices indicates that price increases bring forth more of that resource. This means that as the price of a resource increases, suppliers are incentivized to produce more of that resource in order to earn higher profits. In turn, this increase in supply helps to bring the price back down towards equilibrium. This principle applies to all resources, not just land, and is a fundamental concept in economics.

The Incentive Function of Prices