The economic function of profits and losses is to
A)bring about a more equal distribution of income.
B)signal that resources should be reallocated.
C)eliminate small firms and reduce competition.
D)tell government which industries need to be subsidized.

Question

Quizplus · Accepted Answer

Profits and losses serve as signals in a market economy, indicating where resources are needed or where they are being wasted. When a firm makes a profit, it suggests that the resources it uses are valued highly by consumers, signaling other firms to allocate resources similarly. Conversely, losses indicate that resources could be used more efficiently elsewhere. This mechanism helps in the efficient allocation of resources across the economy.

The Economic Function of Profits and Losses Is to