Which of the following best describes the "guiding function" of price?
A) In response to a surplus or shortage in two markets, price serves as a "guiding function" by decreasing in one market and increasing in the other market in the short run.
B) The guiding function of price is the movement of resources into or out of markets in response to a change in the equilibrium price of a good or service.
C) The guiding function of price occurs when the market price changes to eliminate the imbalance between supply and demand caused by a shortage or surplus at the original price.
D) The guiding function usually occurs in the short run while the rationing function usually occurs in the long run.
B
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If the government institutes a specific tax for a good that has a perfectly elastic demand curve
A) the producer passes the entire tax on to the consumer. B) the producer must absorb the entire tax. C) the producer can generally only pass part of the tax onto the consumer. D) the equilibrium price drops.
As quantity increases, which of the following must be true if average total costs are rising? a. Marginal cost must be greater than average total cost
b. Marginal cost must be less than average total cost. c. Average fixed cost must be increasing. d. Average fixed cost must be less than average variable cost.