In a competitive market, which of the following is typically considered the primary driving force in an industry?

• A. Government price controls
• B. Monopoly power
• C. Supply and demand interactions
• D. Barriers to entry

Answer: (C)

Verified step by step guidance

1. Understand the context of a competitive market, which is characterized by many buyers and sellers, free entry and exit, and no single participant having market power.
2. Recall that in such markets, prices and quantities are determined by the interaction of supply and demand, where supply represents producers' willingness to sell at various prices, and demand represents consumers' willingness to buy.
3. Recognize that government price controls and monopoly power are not typical features of perfectly competitive markets; government price controls can distort market outcomes, and monopoly power implies a single seller dominating the market, which contradicts competition.
4. Identify barriers to entry as factors that can limit competition, but in a perfectly competitive market, these barriers are minimal or nonexistent, allowing supply and demand to freely interact.
5. Conclude that the primary driving force in a competitive industry is the interaction of supply and demand, which determines equilibrium prices and quantities.