Market mechanisms

Market mechanisms are the processes through which supply and demand interact to determine the price and quantity of goods and services. When demand increases and supply remains stable, prices tend to rise, encouraging suppliers to produce more. Conversely, if supply exceeds demand, prices usually fall, prompting producers to reduce output. These adjustments help balance the market naturally, guiding resources to where they are most valued. This dynamic process ensures efficient allocation of resources, influences production, and helps meet consumer preferences without centralized control.