Which of the following best determines the market price and equilibrium output in a competitive market?

• A. Government regulations and price controls
• B. The interaction of market demand and market supply
• C. Consumer preferences without considering supply
• D. The production costs of firms alone

Answer: (B)

Verified step by step guidance

1. Understand that in a competitive market, the market price and equilibrium output are determined by the forces of supply and demand interacting with each other.
2. Recall that market demand represents the total quantity of a good consumers are willing and able to buy at different prices, while market supply represents the total quantity producers are willing and able to sell at different prices.
3. Identify that the equilibrium price is the price at which the quantity demanded equals the quantity supplied, meaning there is no shortage or surplus in the market.
4. Recognize that government regulations and price controls can influence the market but do not inherently determine the equilibrium price and output; they may cause deviations from the natural equilibrium.
5. Conclude that consumer preferences alone or production costs alone cannot determine the market price and output without considering the interaction between demand and supply.