An economy system that uses what is regarded as the "Market mechanism" is called_______

1. Analyze the question The question asks which economic system relies on the "market mechanism". The market mechanism is the interaction of demand and supply, which determines prices and decides what is produced, how it is produced, and for whom.

2. Explain the concept The market mechanism is also called the price mechanism. Prices act as signals:

• If demand rises, prices rise, so producers supply more.
• If demand falls, prices fall, so producers cut output.

Here is how each option relates to it:

• Capitalism (free market economy): Resources are privately owned, and decisions are guided by the price mechanism. The government has little or no role.
• Socialism / Command economy: The government owns the resources and makes the decisions through central planning, not through prices.
• Mixed economy: This combines the market mechanism with government intervention. It is not purely market-based.

3. Solution

• Eliminate B (Socialism) and C (Command economy), because both depend on central planning.
• Eliminate A (Mixed economy), because it blends market and government direction, so it is not the system defined by the market mechanism.
• That leaves D (Capitalism), the system in which the market mechanism drives economic decisions.

4. Answer D. Capitalism

5. Exam tip Match each system to its decision-maker:

• Capitalism → Market (price mechanism)
• Socialism / Command → Government (central planning)
• Mixed → Both

When you see "market mechanism", "price mechanism", or "free enterprise", think capitalism.