Microeconomics (2nd Edition) (Pearson Series in Economics)
2nd Edition
ISBN: 9780134492049
Author: Daron Acemoglu, David Laibson, John List
Publisher: PEARSON
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Chapter 1, Problem 1Q
To determine
The reason for making a payment for the goods that consumers consume.
Expert Solution & Answer
Explanation of Solution
In an economy, most goods have limited supply whereas their wants are unlimited. That means the inputs that are used to produce most goods and services (for example, capital and labor), are more scarce than the quantity that consumers desire to consume.
Here in this case, the price acts as a rationing mechanism to prevent the over-usage of a particular scarce resource by making that resource available at the quantity where demand for that resource equals its supply. However, in the case where the price is zero for a particular scarce resource, it will be over-used as its demand will be higher than its supply.
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