In which of these instances does price function as a signal in the market?
A) Suppliers invest more in exploration when the price of oil increases.
B) Consumers complain of price gouging as the price of oil skyrockets.
C) Government imposes price controls on the skyrocketing price of oil.
D) All of the answers are correct.

Question

Quizplus · Accepted Answer

Suppliers investing more in exploration when the price of oil increases is an example of price functioning as a signal in the market. Higher oil prices signal to suppliers that there is greater demand for oil and more exploration is needed to meet that demand. Consumers complaining or government imposing price controls does not necessarily signal anything to the market.

In Which of These Instances Does Price Function as a Signal