What market structure involves buyers entering bids and sellers entering offers for a stock?

The correct answer is based on the characteristics of an auction market, which is defined by the process in which buyers and sellers interact to determine the price of a financial asset, such as a stock. In an auction market, buyers submit bids indicating the maximum price they are willing to pay for a stock, while sellers submit offers (or asks) that reflect the minimum price they are willing to accept. This dynamic create a competitive environment where the price is established through the highest bid meeting the lowest offer, resulting in transactions occurring at the market price.

This model emphasizes transparency and price discovery as all participants can see the bids and offers, leading to greater efficiency in the market. The auction market structure is prevalent in exchanges like the New York Stock Exchange (NYSE), where this bidding process facilitates the buying and selling of stocks in real-time.

In contrast, other market structures may not rely on such direct bid and offer interactions. For instance, dealer markets operate on a system where dealers hold an inventory of stocks and quote prices at which they are willing to buy (bid) or sell (ask), but buyers and sellers do not directly interact as in an auction market. Brokerage markets, while they facilitate transactions, do not primarily operate on the basis of auction-like bids and