Final answer:
The transaction price should be allocated based on the relative standalone selling prices of each performance obligation. Prices serve as crucial signals in a free market economy, enabling efficient allocation of scarce resources.
Step-by-step explanation:
The transaction price in a contract should be allocated to various performance obligations based on the relative standalone selling prices of the goods or services being provided. In a free market economy, prices act as a signal that helps in the allocation of resources efficiently, reflecting the relative scarcity or abundance of goods and services. While it is challenging to allocate resources without prices, other systems, such as central planning or bartering, may be used, but these are generally less efficient. The advantage of prices is that they enable buyers and sellers to make informed decisions, thereby effectively allocating scarce resources without the need for complex planning or negotiations.