Question

The concept of market equilibrium assumes that:

• A. Market forces of supply and demand determine prices
• B. Government intervention is necessary to set prices
• C. Firms individually decide market prices
• D. Consumers control the supply

Hint:

Market equilibrium: \[ Q_d = Q_s \] Price is determined by: \[ \mathrm{Demand\ and\ Supply} \]

Answer 1

The Correct Option is A

Step 1: Understand market equilibrium.
Market equilibrium occurs when: \[ \mathrm{Quantity\ Demanded = Quantity\ Supplied} \] At this point: \[ \mathrm{Market\ Price} \] is determined through interaction of: \[ \mathrm{Demand\ and\ Supply} \]

Step 2: Analyze the options.
Option (A) Prices are determined by: \[ \mathrm{Market\ Forces\ of\ Demand\ and\ Supply} \] \[ \Rightarrow \mathrm{Correct} \] Option (B) Government intervention is not necessary in free market equilibrium. \[ \Rightarrow \mathrm{Incorrect} \] Option (C) Individual firms are price takers in competitive markets. \[ \Rightarrow \mathrm{Incorrect} \] Option (D) Consumers influence demand, not supply directly. \[ \Rightarrow \mathrm{Incorrect} \]

Step 3: Identify the correct option.
Therefore: \[ \boxed{\mathrm{Market\ Forces\ of\ Supply\ and\ Demand\ Determine\ Prices}} \] Hence, the correct answer is: \[ \boxed{\mathrm{(A)}} \]