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Chapter 4: Problem 2

What kind of information does price transmit?

Short Answer

Expert verified
Price transmits information about value, supply and demand status, scarcity or abundance, market's ability to bear costs, opportunity costs, and comparative usefulness.

Step by step solution

01

Clarify the concept of price

In economics, price refers to the amount of money exchanged for a good or service. In a market economy, prices are typically identified through the interaction between buyers and sellers.
02

Identify types of information communicated by the price

Price can communicate information such as the value of a product, the supply and demand status, any scarcity or abundance, and the ability of the market to bear costs. Also, it can reflect opportunity costs and demonstrate comparative usefulness.
03

Provide examples for each type of information

For example, a high price for a product can demonstrate high demand and low supply, or the intrinsic value of the product. Fluctuations in price can illustrate changes in the market situation. Comparatively higher prices of Gold against iron can suggest the perceived usefulness and rarity of gold in the market.

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Most popular questions from this chapter

Buyers always prefer lower prices to higher prices. Do you agree or disagree with this statement? Explain your answer.

What is the difference between a price ceiling and a price floor? What effect is the same for both a price ceiling and a price floor?

If the absolute price of good \(X\) is $$\$ 10$$ and the absolute price of good \(Y\) is $$\$ 14,$$ then what is \((a)\) the relative price of good \(X\) in terms of good \(Y\) and \((b)\) the relative price of good \(Y\) in terms of good \(X ?\)

Think of ticket scalpers at a rock concert, a baseball game, or an opera. Might they exist because the tickets to these events were originally sold for less than the equilibrium price? Why or why not? In what way is a ticket scalper like and unlike your retail grocer, who buys food from a wholesaler and then sells it to you?

Explain why fewer exchanges are made when a disequilibrium price (below the equilibrium price) exists than when the equilibrium price exists.
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