Answer to Question #209364 in Economics of Enterprise for qwery

Question

why are relative prices important in the economy

Answer 1

Relative price

This refers to the quantity of some other good that can be exchanged with a specified quantity of a given good.

Importance of Relative price

Most important in determining the exchange rate changes in the long run, medium periods and also in the short run.

Owners of resources compare relative prices in different markets to determine where to sell resources or services to earn the most benefits.

 Relative prices provide information needed by consumers, producers, and resource owners to make economic decisions. For instance, they will decide whether to buy, whether to buy and how much to buy.