Explain how the free-market mechanism adjusts prices so that resource allocation is economically efficient.

What will be an ideal response?


Firms are induced to buy and use inputs so that they yield the most-valuable outputs per unit of input. Prices are the rationing agents in their decision making. In distribution, the pricing mechanism serves to allocate products among consumers in ways that match individual preferences as they seek to maximize utility. Firms are induced to set MC equal to price, and consumers are induced to set MU equal to price, thus guaranteeing that the rule for efficiency, MC = MU, is satisfied.

Economics

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Between 1945 and 1985, the number of farms declined and the average farm size increased, both of which suggest that

a. people were eating less food b. price support programs were enriching farmers c. farm incomes decreased d. land prices decreased e. large-scale farming was more efficient than small-scale farming

Economics

Price ceilings create shortages, but taxes do not.

Answer the following statement true (T) or false (F)

Economics

Excise taxes are

A. really income taxes in disguise. B. profits taxes on major corporations. C. per-unit taxes on specific goods. D. percentage taxes on sales revenues.

Economics

 Output  Total Cost015125233340448558670Refer to Table 5.5. The marginal cost of the third unit of output is:

A. $0. B. $7. C. $8. D. $40.

Economics