ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -In a purely free market, buyers and sellers arrive at prices based only on supply and demand. As such, buyers and sellers compete with one another and among each other to pay the lowest price (for buyers) or receive the highest price (for sellers).

Detailed explanation-2: -A market economy is driven by the motive of self-interest. Consumers have the motive of trying to get the greatest benefits from their budgets. Entrepreneurs try to get the highest profits for their businesses. Workers try to get the highest possible wages and salaries.

Detailed explanation-3: -As the price of a good goes up, consumers demand less of it and more supply enters the market. If the price is too high, the supply will be greater than demand, and producers will be stuck with the excess. Conversely, as the price of a good goes down, consumers demand more of it and less supply enters the market.

Detailed explanation-4: -The profit motive refers to an individual’s drive to undertake activities that will yield net economic gain. Because of the profit motive, people are induced to invent, innovate, and take risks that they may not otherwise pursue.