Answer
Prices form the backbone of market economies. They are what dictates supply and demand in a market economy. They are the signals which guide the allocation of resources.
Work Step by Step
Because we have scarce resources, the way in which these resources get allocated depends on whoever is willing and able to pay a price for it. Prices will be adjusted so that the quantity demanded exactly balances the quantity supplied (thus we reach an equilibrium state). Therefore in market economies, prices are the mechanism for rationing scarce resources.
