Prices are important in a market economy because they allocate goods into their highest-valued uses.

Question

Quizplus · Accepted Answer

Prices help to determine the demand and supply of goods and services in a market economy. When prices increase, it is an indication that the demand is higher than the supply, and vice versa. This guides producers to allocate their resources to the production of goods and services that are in high demand, hence maximizing profits. Similarly, consumers are guided by prices to make choices based on their needs, preferences, and budget. This way, goods and services are allocated to their highest-value use.

Prices Are Important in a Market Economy Because They Allocate