Your friend is a business owner in a market economy. What decides how to allocate the productive resources he uses?

In a market economy, it is the consumers that will decide how to allocate the productive resources a business uses. The allocation of products is determined by a concept that is known as supply and demand. When there is a demand for a certain product, then obviously the business has to supply that product. It is the job of the business to look out for signs of demand of a certain product and they have to know just how much of that product he should supply.