The market solves the information problem when allocating resources by:
A) collapsing all the relevant information about uses of the good into its price.
B) collapsing all the relevant information about inputs of the good into the level of output.
C) aggregating all the relevant information about the output of the good into the supply curve.
D) aggregating all the relevant information about the output of the good into the demand curve.

Question

Quizplus · Accepted Answer

Prices in a well-functioning market economy serve as signals that provide information regarding the relative scarcity of resources and the relative value of goods and services. The prices are formed by the interaction of supply and demand forces in the market, based on the information that buyers and sellers have about the availability and desirability of the goods. As a result, prices convey information about the opportunity cost of producing or consuming a good, as well as the preferences and willingness to pay of consumers. Therefore, the market prices provide a summary of the relevant information that is required to allocate resources efficiently among competing uses, without the need for a central authority or a perfect knowledge of every individual's needs and abilities.

The Market Solves the Information Problem When Allocating Resources By