The signals that guide the allocation of resources in a market economy are
A)surpluses and shortages.
B)quantities.
C)government policies.
D)prices.

Question

Quizplus · Accepted Answer

In a market economy, prices serve as signals for the allocation of resources. When a good or service is in high demand, the price will increase, which signals to producers that there is a profit opportunity and they should allocate more resources towards producing that good or service. On the other hand, when a good or service is not in high demand, the price will decrease, which signals to producers to allocate fewer resources towards that good or service. Therefore, prices serve as an important guide for resource allocation in a market economy.

The Signals That Guide the Allocation of Resources in a Market