Final answer:
Price increases encourage Chantelle to grow and sell more tomatoes, exemplifying how prices act as signals in the market, guiding producer behavior to align with supply and demand.
Step-by-step explanation:
Chantelle's decision to grow and sell more tomatoes as a result of the price increase is an example of price functioning as a signal. In economics, prices signal to producers about market conditions. When the price of tomatoes rises, it usually indicates a higher demand or a lower supply. Observing this signal, producers like Chantelle are incentivized to increase production to maximize profits. This is reflective of how in perfectly competitive markets, such as agriculture, producers respond to prices as they are largely price takers due to the products being highly similar and interchangeable.
The concept also illustrates how price fluctuations act as a natural mechanism within markets, guiding the decisions on what to produce, how to produce it, and for whom it is produced. This scenario where Chantelle responds to price changes, much like the aforementioned oat farmer or a corn farmer being responsive to market signals, demonstrates the critical role of prices in market economies.