Question

Under price mechanism, resources are directed to the production of luxuries than necessities, since the rich who demand luxury have a higher ability to pay.

• A. True
• B. False

Answer 1

The correct option is A True

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 i.e supply will increase if price increases and vice-versa and the demand sector i.e demand will increase if price decreases and vice-versa. This leads to distribution of goods and services according to the purchasing power of the individuals which brings inequality in the distribution channel. Therefore, only those goods are produced which are in high demand like luxurious goods etc.