One of the drawbacks of free markets is the fact that competition in such markets undermines the ability of price to adjust to its equilibrium value in the long run.

Question

Quizplus · Accepted Answer

The statement is incorrect. In fact, competition in free markets ensures that prices do adjust to their equilibrium value in the long run. When there is excess demand for a product, prices will increase, attracting new producers to enter the market and increasing supply until the market reaches equilibrium. Conversely, when there is excess supply, prices will decrease, causing some producers to exit the market and reducing supply until the market reaches equilibrium. This process of supply and demand interacting to determine prices is the basis of how free markets work.

One of the Drawbacks of Free Markets Is the Fact