Identify the role of price in free market economy
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The economy wide role of free (unfettered) prices is to convey knowledge efficiently, they are a signaling mechanism.
They allows producers to examine all possible production methods for that unique combination of needed resources which, in their estimation, will be the most profitable, using the least amount of resources to produce goods and services and offer them for sale.
Efficient production of the goods most highly demanded results in the wealth of nations.
Prices hampered by government interference, or price controls, or central planning do not convey the knowledge that free prices do, and will not lead to either efficient production, or even the production of goods that people actually want and need.
They allows producers to examine all possible production methods for that unique combination of needed resources which, in their estimation, will be the most profitable, using the least amount of resources to produce goods and services and offer them for sale.
Efficient production of the goods most highly demanded results in the wealth of nations.
Prices hampered by government interference, or price controls, or central planning do not convey the knowledge that free prices do, and will not lead to either efficient production, or even the production of goods that people actually want and need.
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