Price Signals

Price signals are indicators created by the market that show the relative value of goods and services. When prices rise, they suggest higher demand or limited supply, encouraging producers to supply more or consumers to buy less. Conversely, falling prices indicate lower demand or surplus, prompting producers to reduce output and consumers to buy more. These signals help allocate resources efficiently without central control, guiding producers and consumers in decision-making based on current market conditions. Ultimately, price signals coordinate behavior, balancing supply and demand naturally.