The rationing function of prices refers to the:

• A. way in which government sets price ceilings to control market outcomes
• B. method used by consumers to maximize their utility
• C. process by which prices allocate scarce goods and resources to those who value them most
• D. mechanism by which firms determine their production costs

Answer: (C)

Verified step by step guidance

1. Understand the concept of the rationing function of prices: it explains how prices help allocate scarce goods and resources in a market economy.
2. Recognize that when a good is scarce, its price adjusts to balance supply and demand, ensuring that the good goes to those who value it the most.
3. Note that this function is not about government intervention (like price ceilings) or consumer utility maximization directly, but about the role of prices as signals in the market.
4. Recall that prices act as a rationing device by limiting quantity demanded when supply is limited, thus allocating resources efficiently.
5. Conclude that the rationing function of prices is best described as the process by which prices allocate scarce goods and resources to those who value them most.