Question:
The main function of prices in a market economy is to
(1) generate more profits to the entrepreneurs.
(2) guide households to choose investment opportunities.
(3) determine the elasticity of demand curves.
(4) improve the distribution of income.
(5) allocate scarce resources among alternative uses.
Correct Answer:
(5)
Answer Explanation:
In a free-market economy, the price mechanism acts as the “invisible hand.” Prices serve as signals to both producers and consumers, rationing scarce goods and directing productive resources to their most highly valued alternative uses.
Topic: Price Mechanism Year: 2017
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