What mechanism allows markets to clear What mechanism allows

Solution

Law of demand and supply is the mechanism.

Markets clear when demand equals supply. If demand exceeds (falls short of) supply, an excess demand (supply) is created resulting in shortage (surplus), which raises (lowers) prices. As price increases (decreases), due to the law of demand, quantity demanded falls (increases), and the process continues until equilibrium is restored again.

The similar chain of events occur if supply falls short of (exceeds) demand. It results in market shortage (surplus) which causes a rise (fall) in price. As per law of supply, higher (lower) price increases (decreases) supply, until previous equilibrium is reached.