Which economic system is primarily characterized by the interaction of supply and demand in determining prices and resource allocation?

• A. Command economy
• B. Mixed economy
• C. Market economy
• D. Traditional economy

Answer: (C)

Verified step by step guidance

1. Understand the key characteristics of each economic system: Command economy, Mixed economy, Market economy, and Traditional economy.
2. Recall that a Command economy is one where the government centrally plans and controls production and prices, rather than letting supply and demand determine them.
3. Recognize that a Traditional economy relies on customs, traditions, and barter, with little emphasis on supply and demand mechanisms.
4. Identify that a Mixed economy combines elements of both government intervention and market forces, so prices are influenced by both supply and demand and government policies.
5. Conclude that a Market economy is primarily characterized by the interaction of supply and demand in determining prices and resource allocation, with minimal government intervention.