Skip to content

CA Foundation · Business Economics · Nature and Scope of Business Economics

Which of the following is a function of the price mechanism in a market economy?

The price mechanism rations scarce goods to buyers who are willing and able to pay the price, and signals producers where to allocate resources. It does not equalise incomes, fix firm output or abolish scarcity.

  1. ARationing scarce goods among buyers according to willingness and ability to payCorrect
  2. BGuaranteeing equal incomes to all citizens
  3. CFixing the maximum output of each firm
  4. DEliminating the problem of scarcity

Explanation

Prices ration scarce goods to those willing and able to pay and also signal producers where to allocate resources. The price mechanism does not equalise incomes, set output caps or remove scarcity, which is a basic economic condition.

Did you get it right without looking?

One question tells you little. A timed set on Nature and Scope of Business Economics shows your real accuracy, how long you take and where you lose marks.

Practise Nature and Scope of Business EconomicsFree diagnostic mock

More Nature and Scope of Business Economics questions