Market mechanism is a term from economics referring to the use of money exchanged by buyers and sellers with an open and understood system of value and time trade-offs to produce the best distribution of goods and services. The use of the market mechanism imply in a free market; there can be captive or controlled markets that seek to use supply and demand, or some other form of charging for scarcity, both in social situations and engineering. This is a main term when it comes to marketing in economics. In this, we have three types of economy free market economy, command or planned economy and mixed economy. In free market economy, all the resources are allocated by private sector (individuals, households, and groups of individuals); in planned economy, all the resources are owned by the public sector (local and central government); and, in mixed economy, the resources are owned by both private and public sector. Resources are allocated according to the forces of demand and supply, and this is known as market mechanism.
Government interference in market mechanism leads to economic inefficiency. Prices convey a lot of information. It not only tells producers what to produce but rather informs the producers to produce what people want. The more inaccurate the information gets, the lesser will be the economic coordination which will in turn lower satisfaction of wants. Thus interference in the information conveyed by prices is destructive to the economic progress of an economy.
Other market mechanisms include government fiscal policy and monetary policy. Described by the Friedman rule' proposed by Milton Friedman. These policies will influence demand by price adjustments through taxes and charges and through adjustments to the value of money by the related supply of money.