Question

Which statement is correct?

1) The operation of a market system has little, if any, effect on the distribution of income in the economy.
2) In a market system, buyers and sellers must be in face-to-face contact with each other.
3) In a market system, prices serve to ration goods and services to consumers.
4) Prices affect the distribution of goods in a market system but not the allocation of resources.

Answer 1

The correct statement is that prices in a market system ration goods and services to consumers. Market prices inform on the scarcity of resources and influence both supply and demand decisions as well as the distribution of income in the economy.

Step-by-step explanation:

The correct statement among the ones provided is that in a market system, prices serve to ration goods and services to consumers. This is because the market price system is an efficient mechanism that disseminates information about the relative scarcities and thereby helps to allocate resources efficiently in the economy. Prices in a market convey important information about the relationship between demand and supply, and thus guide the decisions made by buyers and sellers. Furthermore, a market system does have an effect on the distribution of income because individuals with more resources can generally afford to pay higher prices and thus can obtain more goods and services. Contrary to one of the statements given, buyers and sellers do not need to be in face-to-face contact, as transactions can occur remotely or electronically.