Question

Describe the role of prices in market economies.

Answer 1

Price is the very important tools in the market economies for distributing goods and resources throughout the economy.It decide what goods are to be produced and in which quantity and determine who will get the goods.

If there are a shortage of goods and due to this price will increases and if the price increases then the demand decreases which encourages the firms to increase the supply.

If there are surplus of goods then price will fall and if the price decreases then the demand increase so more people buy the goods so firms has cut back to the supply