The price mechanism is the process by which the forces of supply and demand interact to determine the price of goods and services in a market. When demand for a product increases, prices tend to rise, encouraging producers to supply more. Conversely, if demand decreases, prices may fall, leading to reduced production. This mechanism helps allocate resources efficiently. For example, if consumers prefer electric cars over gasoline cars, the higher demand for electric cars will lead to increased production and innovation in that sector. Thus, the price mechanism plays a crucial role in guiding economic decisions and resource distribution.