In a free enterprise system, the supply and demand model plays a crucial role in determining prices and allocating resources. Here's how the options you provided relate to the functioning of this system:
-
Prices rise when demand exceeds supply. - This statement is true. When demand for a product or service increases and supply does not keep pace, the price tends to rise. This represents a market response where higher prices can encourage producers to increase supply and attract new entrants into the market.
-
Prices are controlled by the government. - This statement is generally not true in a free enterprise system. In a free market, prices are determined by the interactions of supply and demand, rather than through government control. However, some governments do implement price controls in specific situations (e.g., rent control, price ceilings on essential goods), but this is not characteristic of a free enterprise system.
-
Prices remain constant regardless of supply or demand. - This statement is false. In a free market, prices fluctuate in response to changes in supply and demand. Constant prices would suggest a lack of competition or market inefficiencies.
-
Prices fall when supply exceeds demand. - This statement is true. When supply exceeds demand, there is often more product available than consumers are willing to buy, leading to a decrease in price. Lower prices can stimulate demand and discourage excessive supply.
In summary, the first and fourth statements accurately describe how the supply and demand system functions in a free enterprise system, while the second and third do not.