The rationing function of prices refers to the:

• A. process by which firms set prices to maximize profits
• B. determination of the level of government intervention in the market
• C. allocation of scarce resources to those willing and able to pay the market price
• D. creation of price floors and price ceilings by regulatory authorities

Answer: (C)

Verified step by step guidance

1. Understand the concept of the rationing function of prices: it explains how prices help allocate scarce resources in a market economy.
2. Recognize that prices act as signals to both consumers and producers, influencing their decisions about buying and selling goods or services.
3. Identify that the rationing function means resources go to those who are willing and able to pay the market price, effectively 'rationing' limited goods.
4. Distinguish this from other concepts such as profit maximization by firms, government intervention, or regulatory price controls, which are different economic mechanisms.
5. Conclude that the rationing function of prices is best described as the allocation of scarce resources to those willing and able to pay the market price.