In a market economy, prices are the signals that guide the allocation of scarce resources.

Question

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In a market economy, prices are determined by supply and demand, and they signal to producers and consumers how to allocate resources efficiently. Higher prices indicate greater demand or lower supply, encouraging producers to supply more of a good or service, while lower prices indicate lower demand or higher supply, signaling producers to supply less. This mechanism helps in the allocation of scarce resources to where they are most valued.

In a Market Economy, Prices Are the Signals That Guide