Question

Which of the following conditions are required for price mechanism to operate in an economy?

• A. Existence of competition
• B. No government intervention
• C. Mobility of resources
• D. All of the above

Answer 1

The correct option is D All of the above

Price mechanism refers to the mechanism where price directs the flow of goods and services in the market as it directs the supply by the production sector i.e supply will increase if price increases and vice-versa and the demand sector i.e demand will increase if price decreases and vice-versa. Therefore for price mechanism to operate smoothly, government intervention needs to be avoided with free flow of all the resources required for the production of the demanded commodities.