The central coordinating mechanism in a market economy.
Explanation of Solution
A market economy is a system in which decisions related to the economy and the pricing of products and services are directed by the exchanges that take place between country’s citizens and businesses. The central coordinating mechanism in a market economy is the price mechanism. The price mechanism is the system where the demand and supply forces determine the prices of goods and services. In a market economy, the buyer’s demand and the seller’s supply meet at a point, where the price that the buyer is willing to pay is equal to the price seller is willing to get for a particular quantity of the product. Thus, this mechanism centrally coordinates the market and hence helps to decide the quantity that needs to be supplied in the market. Hence, price mechanism is a central coordinating mechanism in a market economy.
Want to see more full solutions like this?
Chapter 3 Solutions
Microeconomics
- Based upon those notions of self-interest and public interest and the bringing of both into harmony, according to Adam Smith, how would a market economy accomplish that harmony about which he describes? What is government's place in that market economy?arrow_forwardWhen we analyze the general equilibrium model, why do we ignore the equilibrium for the non-monetary market?arrow_forward“Market forces should be allowed to allocate resources”. Is this a positive or normative statement?arrow_forward
Economics Today and Tomorrow, Student EditionEconomicsISBN:9780078747663Author:McGraw-HillPublisher:Glencoe/McGraw-Hill School Pub Co
