Microeconomics
Microeconomics
10th Edition
ISBN: 9781259655500
Author: David C Colander
Publisher: McGraw-Hill Education
Question
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Chapter 3, Problem 1QE
To determine

The central coordinating mechanism in a market economy.

Expert Solution & Answer
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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.

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