Paper 3 · economic systems
State the term for the mechanism that allocates resources in a market economy through the interaction of supply and demand, rather than through central government planning.
Model answer
price mechanism
Also accepted: price system, market mechanism
Explanation: In a market economy, prices set by the interaction of supply and demand signal relative scarcity and coordinate the independent decisions of producers and consumers. This price mechanism is what allocates resources, in contrast to a planned economy where a central authority directs resource allocation.
Derived from ZIMSEC Economics Paper 3, June 2008, Q1
