The market mechanism:
A) Works through central planning by the government.
B) Eliminates market failures created by the government.
C) Uses prices as a means of communication between consumers and producers.
D) Is very inefficient since consumers cannot communicate directly with producers.

Question

Quizplus · Accepted Answer

The market mechanism uses prices as a means of communication between consumers and producers. It allows for the efficient allocation of resources based on supply and demand. This means that prices adjust to clear markets, and resources (including labor, capital, and goods) are allocated to their most valued uses. The market mechanism is not based on central planning by the government and cannot eliminate all market failures, but it does promote economic efficiency. Choice A is incorrect because the market mechanism is based on free exchange and not central planning. Choice B is incorrect because the market mechanism cannot eliminate all market failures. Choice D is incorrect because consumers communicate with producers through the price signals sent by the market mechanism.

The Market Mechanism