Multiple Choice
If new manufacturers enter the computer industry, what is the most likely effect on the market equilibrium in a competitive market?
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3. The Market Forces of Supply and Demand
Competitive Markets
Multiple Choice
Prices are set by the competitive market when:
A
the government imposes price controls on goods and services
B
buyers and sellers negotiate prices individually for each transaction
C
a single firm dominates the market and sets prices for all buyers
D
many buyers and sellers interact and no single agent can influence the market price
Verified step by step guidance1
Understand the concept of a competitive market: it is characterized by many buyers and sellers where no single participant can influence the market price.
Recognize that price controls imposed by the government are external interventions that prevent the market from setting prices naturally.
Note that when buyers and sellers negotiate prices individually, it indicates a non-competitive or bilateral negotiation setting, not a competitive market.
Identify that a single firm dominating the market and setting prices describes a monopoly or imperfect competition, not a competitive market.
Conclude that in a competitive market, prices are determined by the interaction of many buyers and sellers, ensuring that the market price is set by overall supply and demand.
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