DECA+ Business Management and Administration Practice Exam

Which of the following best describes the impact of price fixing on the market?

1. It enhances consumer bargaining power

2. It leads to lower prices for consumers

3. It restricts fair competition

4. It encourages competitive practices

The correct answer is: It restricts fair competition

Price fixing refers to an agreement between competing firms to set prices at a certain level, rather than allowing market forces to determine the price based on supply and demand. This practice can lead to a range of negative outcomes in a competitive market. The impact of price fixing primarily restricts fair competition. When companies engage in price fixing, they eliminate price competition, which often leads to inflated prices and reduced choices for consumers. By coordinating prices, businesses undermine the fundamental principles of a free market, where the interaction of supply and demand typically drives pricing. This lack of competition can result in less innovation and poorer service, as companies no longer have to compete for customers based on price or quality. Thus, the characterization of price fixing as a restriction on fair competition effectively summarizes its detrimental impact on the market and consumers alike.