Which economy is characterized by the law of supply and demand?

In a market economy, the law of supply and demand serves as the fundamental principle driving economic interactions. In this system, prices for goods and services are determined by the relationship between the availability of those goods or services (supply) and the desire of consumers to purchase them (demand). When demand for a product increases, and supply remains constant, prices tend to rise, reflecting the higher competition for the available products. Conversely, when supply surpasses demand, prices typically decrease to encourage consumption.

This self-regulating nature of a market economy allows for efficient allocation of resources, as businesses adjust their production based on consumer preferences and purchasing behaviors. This dynamic encourages innovation and responsiveness in the market, contributing to economic growth and consumer satisfaction.

In contrast, a command economy is controlled by central authorities that dictate production and pricing, leaving little room for individual consumer choices or the natural fluctuations of supply and demand. A mixed economy incorporates elements from both market and command economies, but it does not solely operate based on the unregulated interactions of supply and demand. A traditional economy relies on historical practices and customs rather than market forces, which do not follow the principles of supply and demand either. Therefore, a market economy distinctly exemplifies the law of supply and demand through its