Market Forces

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  • The uninterrupted operation of supply and demand to determine market outcomes. Ideally, the freedom to buy and sell is supposed to determine market prices and desired output or efficient allocation of scarce resources.

    Market forces may produce expected outcomes when certain conditions prevail. For example, consumers must be fully aware of competing prices, the market must be competitive, there must be diverse producers and substitutable products, and no producer must exercise a considerable sway over prices and the quantity that will be made available in the market. These are some of the necessary conditions for a perfectly competitive market structure, which is usually used as a model of an efficient market in economics.

    The assumptions make it feasible to analyze consumer reaction to prices and producer reaction ...

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