Which of the following is considered the essential signal in the market mechanism that helps allocate resources efficiently?

• A. Income
• B. Profit
• C. Wages
• D. Price

Answer: (D)

Verified step by step guidance

1. Understand the concept of the market mechanism, which is the process by which supply and demand interact to allocate resources efficiently in an economy.
2. Recognize that the essential signal in this mechanism is the one that conveys information about scarcity and consumer preferences to both producers and consumers.
3. Recall that prices serve as this signal because they adjust based on changes in supply and demand, guiding producers on what to produce and consumers on what to buy.
4. Differentiate prices from other economic variables like income, profit, and wages, which are outcomes or rewards rather than signals directing resource allocation.
5. Conclude that price is the key signal in the market mechanism that helps allocate resources efficiently by balancing supply and demand.