Which activity most likely takes place in a competitive business market?

• A. Firms independently set prices based on supply and demand.
• B. A single firm determines the market price for all sellers.
• C. Government agencies regulate all transactions between buyers and sellers.
• D. Firms collude to restrict output and raise prices.

Answer: (A)

Verified step by step guidance

1. Understand the characteristics of a competitive business market: many firms, identical or very similar products, and no single firm can influence the market price.
2. Recognize that in a competitive market, firms are price takers, meaning they accept the market price determined by overall supply and demand rather than setting prices themselves.
3. Analyze each option by comparing it to the competitive market characteristics: a single firm setting the price suggests monopoly power, government regulation controlling transactions suggests a regulated market, and collusion indicates an oligopoly or cartel behavior.
4. Identify that the option where firms independently set prices based on supply and demand aligns with the idea that prices emerge from market forces, not from individual firms or external control.
5. Conclude that the activity most likely in a competitive market is firms accepting prices determined by supply and demand, reflecting the price-taking behavior typical of such markets.