The price system determines the level and composition of output because it relies on firms' acting in accord with

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The price system is based on the profit motive, which means that businesses aim to produce goods and services that will generate the highest profits. Prices signal to firms what goods are in demand and what their costs are, allowing them to make decisions about how much to produce and what resources to use. The market supply curve reflects the amount of a good that firms are willing and able to produce at different prices, and this information helps determine the overall level of output. Altruistic concerns, government mandates, and the predictions of economists are not the main factors that direct firms' production decisions.

The Price System Determines the Level and Composition of Output