Answer to Question #2843 in Economics of Enterprise for Amy

Question

In a market economy, what does a high price signal?

Answer 1

There are some possible explanations of high prices:
-& High inflation. If in the country’s economy is high inflation it means that money have low purchasing power. So, we need more money to buy required goods. And prices are high.
- Deficit of goods. If in the market exists deficit of goods, supply declines. If supply declines, the market equilibrium changes and prices become higher. So, high prices can be caused by deficit of goods
- High tax rate. If taxes are high then production costs are also high and prices are respectively high too.