In a price system, changes in prices
Part 2
A.
make it difficult for the economy to function well.
B.
signal to consumers that some goods are relatively more or less scarce.
C.
signal to policymakers what goods should and should not be taxed.
D.
imply that people have made mistakes in the past.
B. signal to consumers that some goods are relatively more or less scarce.
To determine the correct answer, we can examine each option and analyze the role of price changes in a price system.
A. Changes in prices do not necessarily make it difficult for the economy to function well. In fact, price changes are a fundamental characteristic of a market economy and play a crucial role in resource allocation.
B. This option correctly identifies one of the essential functions of price changes. When prices increase, it signals that a good or service is relatively more scarce, encouraging consumers to reduce their consumption or seek alternatives. Conversely, when prices decrease, it signals that a good or service is relatively less scarce, prompting consumers to increase their consumption.
C. While price changes can indicate the relative scarcity of goods and services, they do not solely determine what goods should and should not be taxed. Policymakers consider multiple factors, such as social impact, revenue generation, and equity, when deciding which goods to tax.
D. Price changes do not necessarily imply that people have made mistakes in the past. They reflect the current supply and demand dynamics in the market, which can be influenced by various factors such as changes in production costs, technology, consumer preferences, and external events.
Based on the analysis, the correct answer is B. Changes in prices signal to consumers that some goods are relatively more or less scarce.
B. Signal to consumers that some goods are relatively more or less scarce.
Changes in prices within a price system send signals to consumers about the relative scarcity of goods. When prices increase, it indicates that the goods are relatively more scarce, and consumers may have to allocate their resources more carefully or consider alternatives. Conversely, when prices decrease, it signifies that goods are relatively more abundant, and consumers may choose to purchase more of those goods. This mechanism helps in the efficient allocation of resources within an economy based on market signals.