In market economies Prices play very important roles. Prices reflect how much people value goods and what sacrifices society have to make to provide the goods. Prices have important signaling effects - price changes tell producers and consumers that the market is changing and give some idea regarding what the possible causes might be. This information is crucial for adjusting quantities produced and consumed. Prices help ration the use of scarce resources.
Prices give producers incentives to produce goods and services.
Prices affect the distribution of income. In certain cases markets fail - for example, in the case of public goods. Market interactions involve transactions costs. Often these costs can be limited by restricting transactions within a single body - an organization. When different components of an organization conduct trade - the price is called a transfer price.