question archive Your cousin asks you why prices determined by the market are better than prices determined by the government
Your cousin asks you why prices determined by the market are better than prices determined by the government
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Your cousin asks you why prices determined by the market are better than prices determined by the government. Because you have taken this "Principles of Economics" class, you explain that market-determined prices are better because they generally reflect:
a. the value of a good to society but not the cost of making it
b. the cost of making a good to society but not its value
c. both the value of a good to society and the cost of making it
d. neither the value of a good to society nor the cost of making it
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Market-determined prices are better because they generally reflect:
The correct option is:
c. both the value of a good to society and the cost of making it
Free market determination of prices reflects the consumer's willingness to buy the product as well as suppliers' cost to provide the product. The interaction between the two determines the equilibrium exchange of goods.
