2019 · Q42
The working of the price mechanism in a free-market economy refers to which one of the following ?
General KnowledgeIndian Economy
- AThe interplay of the forces of demand and supply
- BDetermination of the inflation rate in the economy
- CDetermination of the economy's propensity to consume
- DDetermination of the economy's full employment output
Explanation
The price mechanism of a free-market economy is the interplay of demand and supply: their interaction determines prices, which in turn allocate resources among competing uses. This is the core allocative device described in introductory economics. Neither government planning, barter, nor money supply alone defines the price mechanism. Hence demand and supply.