The price system automatically leads to an efficient allocation of inputs among the different production processes.

Question

Quizplus · Accepted Answer

The price system in a free market economy signals the availability and scarcity of resources to producers through market prices. As a result, producers are incentivized to use resources where they are most valued and to avoid wasting resources. This helps to ensure that resources are allocated efficiently among different production processes.

The Price System Automatically Leads to an Efficient Allocation of Inputs