Question

Absence of perfect competition under price mechanism leads to ____________.

• A. reallocation of resources
• B. misallocation of resources
• C. optimum allocation of resources
• D. no allocation of resources

Answer 1

The correct option is B misallocation of resources

Price mechanism refers to the mechanism where price directs the flow of goods and services in the market as it directs the supply by the production sector and purchase by the demand sector. Therefore for price mechanism to operate freely, the market should be perfectly competitive because in a perfectly competitive market, the mobility of the factors of production is efficient.