The profit-signalling mechanism is the feedback loop that controls the allocation of resources in an economic system.

If a company pursues a particular type of economic activity, such as producing a particular product, and it makes a profit, then more resources will be allocated by the business to that activity. If a business is involved in a loss-making venture, then less resources will be allocated to that activity. It's a feedback loop that alters based on profit - negative feedback if there's a loss, positive feedback if there's a profit.

The change in allocation of resources that occurs based on the profit-signalling mechanism is known as the reallocation of resources, and can lead to structural change if it occurs on a large scale.

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