Which system describes prices determined by supply and demand?

• A. Prices are determined by supply and demand.
• B. Prices are set by government decree.
• C. Prices are fixed across the economy.
• D. Prices depend on weather.

Answer: (A)

Prices in a market system are determined by the forces of supply and demand. When demand for a good is high and its supply is limited, prices rise, encouraging more production and reducing consumption. If supply increases or demand falls, prices drop. This automatic adjuster helps allocate resources efficiently and signals to producers what to make and to consumers what to buy. The other statements describe different scenarios: government-set prices reflect a command economy, prices fixed across the economy show price controls, and prices depending on weather describes a factor that can influence prices but isn’t the mechanism by which prices are set.