The signals that guide the allocation of resources in a market economy are

Question

Quizplus · Accepted Answer

Prices are the signals that guide the allocation of resources in a market economy. When the demand for a good or service exceeds the supply, the price increases, signaling to producers that they should increase their output. Similarly, when the supply exceeds the demand, the price decreases, signaling to producers that they should decrease their output. Prices therefore act as a communication tool, providing information to producers and consumers about the relative scarcity and value of goods and services.

The Signals That Guide the Allocation of Resources in a Market