Question

What kind of information does price transmit?

Short answer

Price transmits information about value, supply and demand status, scarcity or abundance, market's ability to bear costs, opportunity costs, and comparative usefulness.

Step-by-step solution

Clarify the concept of price

In economics, price refers to the amount of money exchanged for a good or service. In a market economy, prices are typically identified through the interaction between buyers and sellers.

Identify types of information communicated by the price

Price can communicate information such as the value of a product, the supply and demand status, any scarcity or abundance, and the ability of the market to bear costs. Also, it can reflect opportunity costs and demonstrate comparative usefulness.

Provide examples for each type of information

For example, a high price for a product can demonstrate high demand and low supply, or the intrinsic value of the product. Fluctuations in price can illustrate changes in the market situation. Comparatively higher prices of Gold against iron can suggest the perceived usefulness and rarity of gold in the market.