When price movements act as signals to profit-makers, they cut back on goods with falling prices and increase the production of goods with rising prices, which is called

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The consumer sovereignty mechanism refers to the idea that in a market economy, consumers' preferences and choices, as reflected through price movements, guide the production and distribution of goods. When prices rise, it signals an increase in demand or a decrease in supply, prompting producers to allocate more resources towards those goods. Conversely, falling prices indicate lower demand or excess supply, leading producers to cut back. This mechanism ensures that resources are allocated efficiently according to consumer preferences.

When Price Movements Act as Signals to Profit-Makers, They Cut