Which economic system is defined by prices determined by supply and demand with little government control?

Which economic system is defined by prices determined by supply and demand with little government control?

• A. Free Market
• B. Traditional Economy
• C. Command Economy
• D. Mixed Economy

Answer: (A)

Prices in an economy are set by the forces of supply and demand, with only limited government intervention. This means buyers and sellers freely exchange goods and services, and the prices that emerge signal scarcity and value. When demand for a good rises relative to its supply, the price goes up, encouraging more production and fewer purchases; when supply exceeds demand, the price falls, guiding resources to other uses. The government’s role is mainly to enforce laws and contracts, protect property rights, and maintain fair competition rather than set prices. This description matches a free market, where decisions about what to produce and consume are driven by price signals and voluntary exchange. A traditional economy relies on customs and traditional roles to decide production and use barter or fixed methods. A command economy relies on central planners to dictate what gets produced and at what price. A mixed economy blends market forces with some government intervention, but still centers on price signals guiding decisions.

Prices in an economy are set by the forces of supply and demand, with only limited government intervention. This means buyers and sellers freely exchange goods and services, and the prices that emerge signal scarcity and value. When demand for a good rises relative to its supply, the price goes up, encouraging more production and fewer purchases; when supply exceeds demand, the price falls, guiding resources to other uses. The government’s role is mainly to enforce laws and contracts, protect property rights, and maintain fair competition rather than set prices.

This description matches a free market, where decisions about what to produce and consume are driven by price signals and voluntary exchange. A traditional economy relies on customs and traditional roles to decide production and use barter or fixed methods. A command economy relies on central planners to dictate what gets produced and at what price. A mixed economy blends market forces with some government intervention, but still centers on price signals guiding decisions.