Final answer:
The statement in question is false, as price transparency generally refers to the visibility of retail prices rather than the costs merchants pay for products. Limited market information can lead to inefficiencies, hindering consumers and sellers from making optimal transactions. The FTC's role is to prevent false advertising, not to guarantee that consumers have detailed cost information about products.
Step-by-step explanation:
Price transparency refers to the ease and the extent to which consumers can obtain information about the pricing of products and services in the market. However, the statement 'Price transparency refers to the ability of consumers to discover what merchants actually pay for products' is false.
Price transparency typically means that consumers are aware of the retail prices of products, not necessarily what merchants pay for them, which is often regarded as cost or wholesale pricing. In many cases, the actual costs merchants incur are considered proprietary or competitive information and are not disclosed to consumers.
For a market to reach equilibrium, sellers and buyers must have full information about the product's price and quality. The market price system aims to efficiently disseminate information about the prices and scarcities of various goods and services.
Nonetheless, when there is limited information, it can lead to market inefficiencies. Buyers may hesitate to participate because they cannot ascertain the product's quality, while sellers of high-quality goods might find it difficult to prove the quality of their goods, leading to challenges in agreeing to a fair price
This phenomenon, known as imperfect information, hinders both parties from making optimal decisions.
The Federal Trade Commission (FTC) plays a role in checking factual claims about a product's performance to ensure that consumers are not misled by false advertising.
However, this does not typically include ensuring that consumers know the wholesale costs of products. Therefore, the concept of 'buyer beware' or caveat emptor still applies, as consumers must navigate imperfect information in the market.