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.
B
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The self-correcting tendency of the economy means that falling inflation eventually eliminates:
A. exogenous spending. B. recessionary gaps. C. expansionary gaps. D. unemployment.
Based on the figure below. Starting from long-run equilibrium at point C, a tax increase that decreases aggregate demand from AD1 to AD will lead to a short-run equilibrium at point ________ and eventually to a long-run equilibrium at point ________, if left to self-correcting tendencies.
A. D; C B. D; B C. A; B D. B; C
If you anticipate that the inflation rate is going to rise from three percent to 10 percent next year, you should
A) save your funds at a fixed rate of interest. B) borrow funds at a fixed rate of interest. C) keep your funds in your sock drawer. D) wait to buy a house until next year.
Which is not a criticism of the marginal productivity theory of distribution?
A. It assumes that the existing distribution of ownership factors is fair and just when it may not be. B. It does not tell us much about real policy matters. C. A factor’s MRP does not in any way correspond to productive effort. D. It is inconsistent with most empirical observations.