Ch.04 1. Markets and Competition

CH.04 1. Markets and competition In a perfec perfectly tly co competitive mpetitive market, all p producer roducer roducerss sell identical goods or services. Addi Additionally, tionally, there are many buyers and sellers. Because of these two characteristics, both buyers and sellers iin n perfectly competitiv competitive e markets are price takers. True or F False alse The market for wheat does not exhibi exhibitt the two primary characteristics that define p perfe erfe erfectly ctly c competitive ompetitive markets. Demand Sch Schedule: edule: A table showing the relations relationship hip between the price of a good and the amount that buyers are willi willing ng and able to pu purchase rchase at various pric prices es Demand Curve: A graph graphical ical object showi showing ng the relationship between the price of a good and the amount of the good that buyers are willing and able to purchase at vario various us prices Law of Dem Demand: and: The claim that, with other thi things ngs bei being ng equal, the quantity demanded of a good fall when the price of that good rises. Quantity Demanded Demanded:: The amount of a good that b buyers uyers are willing and able to purchase at a given pric price. e. Price 10 Pao Paolo’s lo’s Quantity Sharon’s Quantity 32 64 20 24 48 30 16 32 40 8 24 50 0 16  To get market demand price add Paolo a and nd Sharon  Price goes o on n y axis. Event A change in the expectations of consumers about prices An inc increase rease in income of co consumers nsumers A dec decrease rease in the price of peanut butter Sh Shift ift Shift Movement Alo Along ng Suppl Supply yC Curve: urve: A graphical object showing the relationship between the price of a good and the am amount ount that sellers are willing and able to supply at various prices. Quantity Suppli Supplied: ed: The amount of a good that se sellers llers are wi willing lling and able to supply at a given price Suppl Supply y Schedu Schedule: le: A table showing the relationship between the price of a good and the amount of iitt that sellers are willing and able to supply at var various ious pric prices es Law of Suppl Supply: y: The claim that, other things being equal, the quantity supplied of a good iincrease ncrease when the price of tthat hat good rises Because you understand the law of suppl supply, y, you can deduce that the correct graphical representatio representation n of the supply for CDs must be S1. More Moreover, over, you know that at a p price rice o off $10 per C CD, D, the quantity suppli supplied ed is five million CDs. A dec decrease rease in the number of producers shift An inc increase rease in the price of peanu peanutt butter Movement alo along ng A change in tech technology nology that makes it more sh shift ift costly to prod produce uce peanut butter The ffollowing ollowing graph sshows hows the market for h hot ot dogs in San Diego, where there are over 1,000 hot dog stands at any gi given ven moment. Suppose a new scientific stu study dy sho shows ws that San Diego is th the e most pollut polluted ed ci city ty in the world. Due tto o heal health th concerns, a significant number of ffamilies amilies move out of the city. The ffollowing ollowing graph sshows hows the market for h hot ot dogs in Dallas, where there are over 1,000 hot dog stands at any given m moment. oment. Suppose the number of hot dog stands increases signif significantly. icantly. Price Quant Quantity ity Demanded Quantity S Supplied upplied 4 2,000 200 8 1,600 600 12 1,200 800 16 800 1,2 1,200 00 20 40 400 0 1,8 1,800 00 Suppose the market for c cars ars is unr unregulated. egulated. Th That at is, car prices are free to adjust based on the fo forces rces of supply and de demand. mand.  If a short shortage age exists iin n the car market, then the current price must be lower than the equilibrium pr price. ice. For the market to reach equilibrium, you would expect buyers to off offer er higher prices. Consid Consider er the market for pens. Suppose that the nu number mber of students with an allergy to pencil erasers increase increases, s, causing m more ore student studentss to switch from pen pencil cil cilss to pens in school. Moreover, the price of plasti plastic, c, a an n impor importtant iinput nput in pen production, has dropped considerabl considerably. y. The ffollowing ollowing graph sshows hows the market for c cars ars in 2008. Between 2008 and 2009, the equilibrium p price rice o off c cars ars remained constant, but the equili equilibrium brium qu quantity antity of c cars ars decreased. F From rom this, you can conclude that be between tween 200 2008 8 and 2009, the supply of cars dec decreased reased and the demand for cars d decreased. ecreased. The ffirst irst group of st students udents thinks the d decrease ecrease in the p price rice of hamburg hamburgers ers iiss due to the fac factt that a new type of grill allows restaurants to cook a hamburger in half the time.