Registered Environmental Manager (REM) Practice Exam

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Which of the following is NOT a requirement for a free market?

A large number of buyers and sellers
Perfect information about prices
Government control over prices
Rational behavior by economic agents

The correct answer is: Government control over prices

In a free market, the fundamental characteristics include the presence of a large number of buyers and sellers, ensuring competition, as well as the concept of perfect information, allowing participants to make informed decisions based on price and availability. Rational behavior by economic agents is also a critical assumption in economic theory, meaning that individuals and businesses act logically to maximize their benefits. Government control over prices, however, contradicts the very nature of a free market. In a free market system, prices are determined by the forces of supply and demand without direct intervention from the government. When the government imposes price controls, it can create distortions in the market, such as shortages or surpluses, and interfere with the natural fluctuations that reflect consumer preferences and resource availability. Therefore, stating that government control over prices is a requirement for a free market is incorrect, as free markets thrive on minimal government intervention.