Which economic system relies on supply and demand to set prices for goods and services?

The economic system that relies on supply and demand to set prices for goods and services is the free market system. In a free market, prices are determined by the interactions between consumers and producers. As demand for a product increases, prices typically rise, incentivizing producers to supply more of that product. Conversely, if demand decreases, prices tend to fall, prompting producers to reduce supply. This dynamic creates a natural balance where resources are allocated efficiently based on consumer preferences.

Other systems, such as a command market or a socialist economy, involve significant government intervention in the economy. In these systems, prices may be set by government authorities rather than being determined through the forces of supply and demand. A traditional market often relies on customs and practices to guide trade rather than on the fluctuations of market forces, making it less responsive to changes in consumer preferences compared to a free market. Thus, the characteristics of the free market align specifically with the concept of supply and demand governing pricing mechanisms.