Which statements are TRUE?
I. The price system solves the information problem by telling us the highest-valued uses for a product.
II. The price system solves the incentive problem by giving consumers an incentive to seek out substitutes when the price of a product rises.
III. The price system solves the social-equity problem by making most products affordable to middle-class households.
A) I, II, and III
B) II and III only
C) I and II only
D) II only

Question

Quizplus · Accepted Answer

Statement I is true as the price system provides information about the demand for a product and the highest-valued uses for it. Statement II is also true as the price system encourages consumers to look for substitutes when the price of a product rises, which helps maintain competition in the market. However, statement III is not entirely true as the price system does not guarantee social equity. Prices can fluctuate, and some products may not be affordable for all households, particularly low-income ones.

Which Statements Are TRUE