Price Signal

A price signal is an indicator that provides information to buyers and sellers in a market about the relative value of goods or services. It helps determine supply and demand dynamics, guiding economic decision-making. When prices rise, it often signals producers to increase supply and consumers to reduce demand, and vice versa when prices fall. Price signals play a crucial role in guiding the allocation of resources and influencing market behavior.

Example

A sudden rise in the price of crude oil sends a price signal to oil producers to increase output, while consumers may seek alternative energy sources.