Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
They guide consumers in making purchases.
B
They ensure all resources are allocated efficiently.
C
They indicate when to reduce production.
D
They regulate the income distribution.
Understanding the Answer
Let's break down why this is correct
Answer
Price signals play a crucial role in helping markets reach social optimality, which is when resources are allocated in the most efficient way for society. When the price of a good or service rises, it indicates that demand is higher than supply, prompting producers to make more of that good. Conversely, if the price falls, it suggests that there is too much supply compared to demand, leading producers to cut back. For example, if the price of apples increases because more people want them, farmers will grow more apples, which helps satisfy consumer needs while ensuring that resources are used efficiently. This process helps balance what society wants with what is available, guiding resources to their most valuable uses.
Detailed Explanation
Price signals help to use resources in the best way. Other options are incorrect because While price signals do help consumers decide what to buy, this is not the main way they create social optimality; Price signals can suggest when to cut back on production, but that's not their main role in achieving social optimality.
Key Concepts
price signals
Topic
Marginal Analysis and Social Optimality
Difficulty
easy level question
Cognitive Level
understand
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