In a free market economy, when a shortage of a raw material occurs, its market price rises. Which of the following best describes the rationing function of this price increase in the allocation of resources?
The higher price motivates existing firms to expand output and encourages new producers to enter the market to capture higher profits.
The higher price provides information to buyers and sellers about the changing scarcity of the raw material in the market.
The higher price contracts quantity demanded, distributing the scarce raw material to those buyers who are most willing and able to pay.
The higher price signals to the government that intervention is required to redistribute the resource equitably using price controls.
