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Question

Which of the following non-economic conditions serve as a pre-requisite for the operating of price mechanism in an economy?

A
Developed legal system
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B
Social chaos
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C
Government intervention
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D
None of the above
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Solution

The correct option is A Developed legal system
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. Since price mechanism operates without government intervention, there is need for developed legal system in the economy so that there are less chances of fraudulent practices in the market.

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