Prices play such an important role in economic life that the United States is often described as a price-directed market economy. Let us see why. 1. Act as Signals to Buyers and Sellers . One of the things that prices do is carry information to buyers and sellers. Encourage Efficient Production .
Prices encourage business people to produce their goods at the lowest possible cost.
The less it costs to produce an item, the more likely it is that its producers will earn a profit. Firms that are efficient will produce more goods with fewer raw materials than firms that are inefficient. Producers strive for efficiency as a way of increasing their profits. While these efforts are in the best interests of the sellers, all of us may benefit because we are provided with the things we want at lower costs. Determine Who Will Receive the Things Produced .