Prices reflect scarcity Are prices working to tell us about

Prices reflect scarcity. Are prices working to tell us about scarcity and the value of things. Why or why not and how bad is it

Solution

Prices reflect scarcity. According to the scarcity principle of economics, when the supply of a good is limited and its demand is high, then there is a mismatch between supply and demand, due to which equilibrium is not attained. To attain equilibrium, prices are fixed high for such goods.

Prices are working to tell us about scarcity and the value of things. If a product is scarce,then naturally, its price will rise, so as to make balance between supply and demand of that good and with this the value of the thing will also rise. For example,diamond is a scarce resource, then its price is very high, and also its value is also too much. A person\'s prosperity is calculated on the basis of diamonds he or she owns.

But sometimes prices defining scarcity becomes bad. As if the scarce resource is a grain, which is essential for every living being and the scarcity is shown by rising prices then a human being will not be able to fulfill his needs.