Why are prices important in a market economy?

Question

Why are prices important in a market economy?

Answer 1

prices are essentially a barrier to entry. The higher a price is the less likely a person is buy that product.

price is inversly related to demand. therefore the more demand there is for a product, the higher the price becomes which keeps more people from buying that product.

to realy know the cause-effect relationship you need to know the elasticity of the the product. For example, the elasticity of gas is very inelastic. this means as the price goes up, very few people will stop purchasing gas. Otherwords, they are insensitive to price changes in gas.