Suppose that the demand for oranges increases. Explain the long-run effects of the guiding function of price in this scenario.

When the demand of the oranges increases, the demand curve of oranges will shift to the right. When the demand curve will shift to the right, the price of oranges will tend to increase. When the price of oranges increases, it will induce the producers to increases their level of production. In the long run, since the producers will be able to expand the level of technology and capital, so when the price of oranges increases, the firms will expand the production capacity and increase the level of supply of oranges. In the short to medium run the prices will tend to increase due to increased demand, but eventually increase in supply of oranges will gradually bring down the level of prices of oranges.