In a free market, which of the following best determines the price of goods and services?

• A. Producers setting prices independently of consumers
• B. Government price controls
• C. The interaction of supply and demand
• D. Central planning by authorities

Answer: (C)

Verified step by step guidance

1. Understand that in a free market, prices are not set by a single entity such as producers alone or the government, but rather emerge from the interaction between buyers and sellers.
2. Recall the fundamental economic model where the price of goods and services is determined by the forces of supply and demand: supply represents how much producers are willing to sell at different prices, and demand represents how much consumers are willing to buy.
3. Recognize that when demand for a good increases, prices tend to rise, and when supply increases, prices tend to fall, leading to an equilibrium price where quantity supplied equals quantity demanded.
4. Note that government price controls or central planning interfere with this natural interaction and are not characteristic of a free market system.
5. Conclude that the best description of price determination in a free market is the interaction of supply and demand.