In a competitive market, how are prices determined?
A) by the interaction of many buyers and many sellers
B) by the interaction of many buyers with the largest seller
C) by the government, who sets the prices that sellers can charge
D) by the largest buyer, who sets the price that all firms sell at

Question

Quizplus · Accepted Answer

Prices are determined by the interaction of many buyers and sellers in a competitive market. As buyers search for the best deal, they will naturally gravitate towards sellers who offer lower prices, which in turn puts pressure on other sellers to also lower their prices in order to compete. This process continues until an equilibrium price is reached, where the quantity of goods that buyers are willing to purchase at that price is equal to the quantity of goods that sellers are willing to sell at that price.

In a Competitive Market, How Are Prices Determined