Prices are the only mechanism that allows trade and specialization to occur in a market economy. Without resort to prices humans could not benefit from the division of labor and specialization beyond some very primitive small scale. Trade allows producers to increase their living standards through specialization in the goods in which they have a comparative advantage—goods which they can produce at a lower relative cost. Only with accurate prices expressed in a common medium of exchange is it possible for people to identify their comparative advantage and specialize in it.
