How does the price of a good or service reflect the relative scarcity of it, and how does that
perform the allocative function in a market economy?

The price of a goods or service reflects the relative scarcity of it. Because when the price is high of a goods or service it means that the production of this goods or service is low.On the other hand when the price is low that means the production of this goods or service is more available.So the scarcity of goods related to the price.

Price of the goods directs the alloctaive function .Allocative function means the proper distribution of goods on the open market economy. When the price is high in a market that means the supply is low there. So according to market equilibrium more supply needed there.

Explanation:

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