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Chapter 3: Q 12. (page 78)

What determines the level of prices in a market?

Short Answer

Expert verified

Demand and supply determine the level of prices in a market.

Step by step solution

01

Step 1. Define price.

The price of a product is the amount of money that must be spent to obtain it.

02

Step 2. What factors influence a market's pricing level?

The junction between demand and supply in a market determines market prices. The ability and willingness of a person to purchase products and services at a certain price is referred to as demand. The ability and willingness of a producer to supply items at a certain price is referred to as supply. Demand and supply work together to establish the price at which goods are bought and sold in a market.

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Most popular questions from this chapter

Many changes are affecting the market for oil. Predict how each of the following events will affect the equilibrium price and quantity in the market for oil. In each case, state how the event will affect the supply and demand diagram. Create a sketch of the diagram if necessary.

a. Cars are becoming more fuel efficient, and therefore get more miles to the gallon.

b. The winter is exceptionally cold.

c. A major discovery of new oil is made off the coast of Norway.

d. The economies of some major oil-using nations, like Japan, slow down.

e. A war in the Middle East disrupts oil-pumping schedules.

f. Landlords install additional insulation in buildings.

g. The price of solar energy falls dramatically.

h. Chemical companies invent a new, popular kind of plastic made from oil

A tariff is a tax on imported goods. Suppose the U.S. government cuts the tariff on imported flat screen televisions. Using the four-step analysis, how do you think the tariff reduction will affect the equilibrium price and quantity of flat screen TVs?

Use the four-step process to analyze the impact of a reduction in tariffs on imports of iPods on the equilibrium price and quantity of Sony Walkman-type products.

What would be the impact of imposing a price floor below the equilibrium price?

Let's think about the market for air travel. From August 2014 to January 2015, the price of jet fuel increased roughly 47%. Using the four-step analysis, how do you think this fuel price increase affected the equilibrium price and quantity of air travel?
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