Which of the following statements is true of market prices in a perfectly competitive market?

Question

Quizplus · Accepted Answer

In a perfectly competitive market, market prices are determined by supply and demand forces and reflect the marginal cost of production. This leads to an efficient allocation of resources as firms produce at the point where marginal cost equals price. This creates a surplus of goods for consumers and also provides an incentive for firms to innovate and produce more efficiently in order to remain competitive. Therefore, choice B is the right answer. The other options are incorrect as market prices are not determined by the government, are not unstable and fluctuate widely and act as incentives for buyers as well as sellers.

Which of the Following Statements Is True of Market Prices