In a market economy, supply and demand play a crucial role in determining the price levels for goods and services. The basic principle is simple: when the supply of a good or service increases, the price tends to decrease if demand remains constant. Conversely, if demand increases while supply remains unchanged, prices are likely to rise. This dynamic interaction helps allocate resources efficiently, as producers respond to consumer needs and preferences.
In contrast, a traditional economy relies on customs and traditions, where price levels are not solely influenced by supply and demand but rather by historical practices. A demand economy focuses more on consumer preferences but does not fundamentally change the supply-demand relationship. Lastly, a command economy is characterized by government control, where prices are set by authorities rather than the market forces of supply and demand.
So, in summary, the correct answer is a) market economy where supply and demand are the primary determinants of prices.