Which of the following best describes the "guiding function" of price?
A)In response to a surplus or shortage in two markets,price serves as a "guiding function" by decreasing in one market and increasing in the other market in the short run.
B)The guiding function of price is the movement of resources into or out of markets in response to a change in the equilibrium price of a good or service.
C)The guiding function of price occurs when the market price changes to eliminate the imbalance between supply and demand caused by a shortage or surplus at the original price.
D)The guiding function usually occurs in the short run while the rationing function usually occurs in the long run.

Question

Quizplus · Accepted Answer

The guiding function of price refers to how prices direct resources to move into or out of a market in response to changes in supply and demand, ultimately leading to a new equilibrium price. Option B best describes this concept. Option A describes the short-run response of prices to a surplus or shortage, but does not fully capture the guiding function of price. Option C is partially correct, but does not explicitly mention the movement of resources into or out of markets. Option D is incorrect, as the guiding function and rationing function are concepts that can occur in both the short and long run.

Which of the Following Best Describes the "Guiding Function" of Price