Prices provide little information about where resources should best be allocated in an economy.

Question

Quizplus · Accepted Answer

Prices serve as signals in an economy and provide information about where resources should be allocated. When the price of a good or service increases, it signals that it is in high demand and resources should be directed towards producing more of it. Similarly, when the price of a good or service decreases, it signals that it is in low demand and resources should be redirected towards producing other goods and services that are in higher demand. Therefore, prices provide important information about resource allocation in an economy.

Prices Provide Little Information About Where Resources Should Best Be