List of exercises Unit 4 The Market Forces of Supply and Demand PDF

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Questions and answers of The Market Forces of Supply and Demand Unit 4 of Principles of Economics...

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  LIST OF EXERCISES UNIT 4. The Market Forces of Supply and Demand

María Bajoni García Entorno Económico International Business 4/12/2020

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1. What is a competitive market? Briefly describe a type of market that is not perfectly competitive. -

A competitive market refers to a market with many buyers and many sellers, so the price impact of each market is negligible. If the seller changes the price, their buyer may change the seller. In a highly competitive market, no seller can influence the market price. Monopoly and oligopoly can create imperfect competitive markets. It follows that only one seller whose price is set by the seller (such as a local TV station) will lead to an imperfect competitive market.

2. What are the demand schedule and the demand curve, and how are they related? Why does the demand curve slope downward? -

The demand schedule is a table showing the relationship between commodity prices and demand quantities, and the demand curve is a graph of the same information. As lower prices increase the quantity demanded, the demand curve slopes downward.

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3. Does a change in consumers’ tastes lead to a movement along the demand curve or a shift in the demand curve? Does a change in price lead to a movement along the demand curve or a shift in the demand curve? -

Changes in consumer tastes will only change the demand curve, while changes in the price of the goods themselves represent changes along the demand curve. When the relevant variable changes, the curve will move, and neither of these two axes will be measured. Because prices are on the vertical axis, changes in prices represent movements along the demand curve.

4. Popeye’s income declines, and as a result, he buys more spinach. Is spinach an inferior or a normal good? What happens to Popeye’s demand curve for spinach? -

Because Popeye buys more spinach when his income falls, spinach is an inferior good for him. His demand curve for spinach shifts out to the right as a result of the decrease in his income.

5. What are the supply schedule and the supply curve, and how are they related? Why does the supply curve slope upward? -

A supply schedule is a table that shows the relationship between the price of a good and the quantity supplied. The supply curve is a graphical depiction of the supply schedule that illustrates that relationship between the price of a good and the quantity supplied. The supply curve slopes upward because a higher

price means a great

quantity supplied.

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6. Does a change in producers’ technology lead to a movement along the supply curve or a shift in the supply curve? Does a change in price lead to a movement along the supply curve or a shift in the supply curve? -

A change in producers' technology leads to a shift in the supply curve. A change in price leads to a movement along the supply curve.

7. Define the equilibrium of a market. Describe the forces that move a market toward its equilibrium. -

Equilibrium of a market is where supply and demand have been brought into balance. At this price, the quantity of a good that buyers are willing and able to buy balances with the quantity sellers are willing and able to sell. The activity of many buyers and sellers automatically pushes the market price toward the equilibrium price. Increase in demand and shortage of supply can also move the equilibrium price, but how quickly equilibrium is reached thereafter varies from market to market.

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8. Beer and pizza are complements because they are often enjoyed together. When the price of beer rises, what happens to the supply, demand, quantity supplied, quantity demanded, and the price in the market for pizza? -

When the price of beer rises, the demand for pizza declines, because beer and pizza are complements and people want to buy less beer. When we say the demand for pizza declines, we mean that the demand curve for pizza shifts to the left as in the figure. The supply curve for pizza is not affected. With a shift to the left in the demand curve, the equilibrium price and quantity both decline, as the figure shows. Thus, the quantity of pizza supplied and demanded both fall. In sum, supply is unchanged, demand is decreased, quantity supplied declines, quantity demanded declines, and the price falls.

9. Describe the role of prices in market economies. -

Prices are great signals that guide economic decisions and bring the market into equilibrium. Prices can signal surplus or shortage and guide economists. Prices different from equilibrium can show a difference in supply and demand and can lead to a change in price until equilibrium is reached.

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