Market Forces and Price Mechanisms Quiz

Market forces are factors that affect the operation of a market economy, such as consumer preferences, supply, and demand.

Perfectly competitive markets have numerous buyers and sellers, ensuring no single entity has control over the market.

For normal goods, an increase in consumer income leads to higher demand as consumers have more purchasing power.

In a market economy, allocation of resources is determined by the interaction of individual consumers and producers through supply and demand.

The price mechanism is the mechanism by which the price of goods and services adjusts to reach equilibrium.

In a free market, when demand for a product increases and supply remains constant, scarcity leads to higher prices.

Elasticity measures how sensitive quantity demanded is to changes in price, a key concept in understanding market behavior.

Positive externalities occur when a third party benefits from an activity, such as society benefiting from increased vaccination rates.

Consumer income typically affects demand, not supply, as it influences consumers' ability to purchase goods and services.

Price ceilings are used to prevent prices from rising above a certain level, usually set below the equilibrium price.

Monopolistic competition markets feature many firms selling differentiated products, allowing for some degree of market power.