Price mechanism refers to changes in demand and supply of commodities due to change in the profits. It is mainly due to the price elasticity of demand. For example, in a market, a buyer will bargain or a price according to his willingness and sellers wants a price that matches his willingness. In this manner, price is settled at an amount at which both buyer and seller agree.

The price mechanism is not an effective way to solve scarcity because scarcity problem is a big problem and it cannot be solved. There is unlimited human wants but limited resources. Suppose demand is more than the supply in an economy due to the scarcity of goods. Price mechanism will work and the price will rise due to more demand. Thus, price is settled at some point. Scarcity problem is not solved due to a rise in the price.