Which of the following best describes a characteristic of a free market?

Which of the following best describes a characteristic of a free market?

• A. Government determines prices of all goods
• B. Supply and demand dictate the prices
• C. Only a few businesses control the whole market
• D. Prices are fixed and cannot change

Answer: (B)

In a free market, the characteristic that best describes its operation is that supply and demand dictate prices. In this system, prices are determined through the interactions between consumers and producers. When demand for a product increases while supply remains constant, prices tend to rise. Conversely, if supply exceeds demand, prices typically fall. This dynamic relationship allows for flexibility and responsiveness to changes in consumer preferences and market conditions, embodying the essence of a free market economy where individuals and businesses have the freedom to make choices based on their interests and needs.

The other options do not accurately reflect the principles of a free market. For instance, government determination of prices is contrary to the fundamental idea of a free market, where prices are established by market forces rather than central authority. Similarly, the notion that only a few businesses control the entire market is more indicative of monopolistic practices, which contradicts the competitive nature of a free market. Lastly, fixed prices that cannot change would not allow for the natural fluctuations dictated by supply and demand, thereby stifling economic innovation and consumer choice.