Definition
- Price mechanism
- The price mechanism is the way demand and supply answer what is produced, how it is produced and for whom it is produced.
- Not to be confused with: Command economy
- A command economy is one in which the government decides what goods and services will be produced and what prices it will charge for them.
Test yourself
What is the difference between price mechanism and command economy?
In a market prices set by demand and supply allocate resources; in a command economy the government decides.