In a market system, how are the price signals established?
A) Consumer advocacy groups establish fair prices for items, and most firms follow these pricing guidelines because they don't want to anger their consumers.
B) Industry associations establish an acceptable price range for each commodity sold within the industry, and member firms are obligated to abide by association guidelines.
C) The forces underlying supply and demand interact to determine a market clearing price.
D) Federal legislation establishes maximum prices for most goods, and state governments regulate the prices of any remaining items.

Question

Quizplus · Accepted Answer

In a market system, price signals are established through the forces of supply and demand. The market clearing price is the point where the quantity of goods supplied matches the quantity of goods demanded, and this establishes the price at which transactions occur between buyers and sellers. The price signals serve as an indicator of market conditions, guiding businesses and consumers to allocate resources efficiently. Factors such as scarcity, competition, and consumer preferences can affect the supply and demand of goods, leading to changes in prices over time. The other options presented do not accurately reflect how prices are determined in a market system.

In a Market System, How Are the Price Signals Established