Question

Explain how markets carry information and create incentives. Describe an example where prices change people's behavior in efficient manners. Make sure to use the correct vocabulary to describe how markets adjust to carry information and create incentives.

Answer 1

Markets carry signals, informations and it can creates incentives.The changes in price level affects the buying behaviour of customers.The changes in price level act as an incentive for consumers to behave properly in the market. For example, a sudden increase in price level force consumer to reduce consumption and producer willing to supply more during the high price situations. The effectiveness of market informations and incentives dependence on the gap that market forces take to adjust.
For a efficient market condition, perfect information about market is essential. Thus imperfect market informations leads to market failures. The production and consumption depends on the incentive created by the market information to both producers and consumers.