Final answer:
In the basic market model, prices and quantities are determined by the joint interaction between consumers and firms within a market-oriented economy, leading to a balance at an equilibrium point. Option (a) is correct.
Step-by-step explanation:
Prices and quantities in the basic market model are determined by the interaction of demand and supply. In a market-oriented economy, there is no single entity that dictates how much should be produced or what should be charged for a service or product. Instead, it is the collective behavior of consumers and firms that drives the market outcomes.
Consumers make purchasing decisions based on their preferences and budget, while firms adjust production and set prices seeking to maximize their profits. When these two forces come together, they find a balance at a certain price level and quantity known as the equilibrium. If either the demand or supply changes, the equilibrium will shift, resulting in new prices and quantities.
To answer the student's question: option (a) Consumers and firms jointly determine prices and quantities is correct. This is because, in the free market, both parties play a role—consumers express their needs and preferences through buying decisions, and firms respond by setting prices that align with what the market will bear while also seeking to cover their costs and earn a profit.