How do prices act as signals to allocated goods, services, and productive resources in a market economy?

High prices act as an incentive to drive demand higher.

B) Low prices act as an incentive for producers to increase inventories.

C) Low prices act as an incentive to drive consumers to substitute goods and services.

D) High prices act as an incentive to increase the supply of a good, service or productive resource.

Question

Geography

Cole Paul

25 November, 21:56

How do prices act as signals to allocated goods, services, and productive resources in a market economy?

High prices act as an incentive to drive demand higher.

B) Low prices act as an incentive for producers to increase inventories.

C) Low prices act as an incentive to drive consumers to substitute goods and services.

D) High prices act as an incentive to increase the supply of a good, service or productive resource.

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Answers (1)

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Ellen Singleton · Answer 1

D) High prices act as an incentive to increase the supply of a good, service or productive resource.

Explanation:

High prices means that there is more profit being made from a product due to which it's demand is more in the market. As a result, these kind of products will have an increased suppl and will be readily available in the market. However, high prices can also lead to the customers finding for a substitute for the goods and the services.