ECONOMICS
MARKET FAILURES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Changes in prices provide information to producers and consumers about changes in demand and supply.
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An increase in prices will encourage more firms to enter an industry.
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When there is a shortage of a product, prices will rise and put some consumers off buying the product.
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A rise in price will worsen any shortage of a product.
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Detailed explanation-1: -Whenever resources are particularly scarce, demand exceeds supply and prices are driven up. The effect of such a price rise is to discourage demand, conserve resources, and spread out their use over time.
Detailed explanation-2: -In neoclassical economic theory, the rationing function of price apportions commodities to the individuals willing to pay the most for them. If willingness to pay reflects value, then the rationing function of price maximizes value across all consumers.
Detailed explanation-3: -Rationing is the controlled distribution of scarce resources, goods, services, or an artificial restriction of demand.
Detailed explanation-4: -Definition: Rationing refers to an artificial control on the distribution of scarce resources, food items, industrial production, etc.
Detailed explanation-5: -Answer and Explanation: The answer is b. Bill Gates purchasing the Mona Lisa for $5 billion. In the rationing function of price, the goods are in limited quantity, and many buyers are eying for it.