In the context of introduction to economics, how do businesses and resource owners use relative prices?

• A. They use relative prices to set government tax rates for various industries.
• B. They use relative prices to allocate resources efficiently by comparing the opportunity costs of different goods and services.
• C. They use relative prices to calculate the average income of consumers.
• D. They use relative prices to determine the total amount of money in circulation.

Answer: (B)

Verified step by step guidance

1. Understand the concept of relative prices: Relative prices represent the price of one good or service compared to another, reflecting the opportunity cost of choosing one over the other.
2. Recognize that businesses and resource owners face choices about how to allocate scarce resources among various possible uses.
3. Use relative prices as signals to compare the opportunity costs of producing or consuming different goods and services, helping to decide which options are more efficient or profitable.
4. Interpret changes in relative prices as incentives to reallocate resources toward goods and services with higher relative prices, indicating greater demand or value.
5. Conclude that by responding to relative prices, businesses and resource owners allocate resources efficiently, maximizing the overall benefit given scarcity.