In a market economy, how do markets typically adjust to changes in consumer preferences or resource availability?

• A. By keeping prices fixed regardless of supply and demand
• B. Through changes in prices that signal producers and consumers to alter their behavior
• C. By government setting production quotas for firms
• D. Through mandatory rationing of goods by central authorities

Answer: (B)

Verified step by step guidance

1. Understand that in a market economy, prices act as signals that coordinate the decisions of consumers and producers.
2. Recognize that when consumer preferences change, demand for certain goods shifts, causing a change in the equilibrium price and quantity.
3. Similarly, when resource availability changes, the supply curve shifts, affecting the equilibrium price and quantity.
4. These price changes incentivize producers to adjust their production levels and consumers to adjust their consumption accordingly.
5. Therefore, the market adjusts through changes in prices rather than fixed prices, government quotas, or mandatory rationing.