Identify the four roles prices play in a modern mixed economy. For each role, write a one or two sentence summary that includes a specific example.

1. Convey information

2. An incentive

3. Prices allow markets to adjust quickly

4. Guide resources

Explanation:

1. A role of price is to convey information. For example the high price of Manhattan real estate, signals that this particular good is in short supply.

2. A market-based economy, prices function as an incentive because they represent potential for profit. Rising prices in a market motivate existing firms to produce more, and they encourage new firms to enter the market. For example, when home prices increase, change signals construction firms, architects, builders, and tradespeople that there are profits to be made in the housing market

3. Prices allow markets to adjust quickly when major events such as wars and natural disasters interfere with the production or movement of goods. For example, during WW2 people needed food and incomes were to the best so markets would make it right for the consumers.

4.An important role of price in a market-based economy is to guide resources to their most efficient uses. For example, the market for dairy products, such as yogurt, ice cream, and cheese; the firms whose dairy products are in greatest demand will buy the most milk in order to make products to meet that demand.

Source: h*tps://sites.google.com/site/jayjamieecon/chapter-6

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