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Chapter 3: Q. 14 (page 78)

Will demand curves have the same exact shape in all markets? If not, how will they differ?

Short Answer

Expert verified

Generally, the demand curve slopes downward. But in some markets the shape of demand curve is different. In perfectly competitive market, the number of buyers and sellers is so large that each one is so small to influence the price and quantity level in the market.

Step by step solution

01

Definition

Law of Demand: Keeping other factors constant, there is an inverse relation between price and quantity demanded of a product.

02

Explanation

Generally, the demand curve slopes downward. But in some markets the shape of demand curve is different. In perfectly competitive market, the number of buyers and sellers is so large that each one is so small to influence the price and quantity level in the market.

The product is homogenous in nature. In this case, the market demand curve is horizontal in shape, parallel to x-axis.

While in an imperfectly competitive markets like monopoly or monopolistic competition, the market demand curve is downward sloping. The monopoly is a market in which there is a single seller selling unique product. Whereas, monopolistic competition is a market structure in which there are large sellers and buyers but not as large as in perfect competition, dealing in differentiated products.

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Most popular questions from this chapter

Table 3.9 illustrates the market's demand and supply for cheddar cheese. Graph the data and find the equilibrium. Next, create a table showing the change in quantity demanded or quantity supplied, and a graph of the new equilibrium, in each of the following situations:

(a) The price of milk, a key input for cheese production, rises, so that the supply decreases by 80 pounds at every price.

(b) A new study says that eating cheese is good for your health, so that demand increases by 20% at every price.

Price per poundQdQs
\(3.00750540
\)3.20700600
\(3.40650650
\)3.60620700
\(3.80600720
\)4.00590730

Review Figure 3.4 again. Suppose the price of gasoline is \(1.00. Will the quantity demanded be lower or higher than at the equilibrium price of \)1.40 per gallon? Will the quantity supplied be lower or higher? Is there a shortage or a surplus in the market? If so, of how much?

Let鈥檚 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?

Suppose both of these events took place at the same time. Combine your analyses of the impacts of the iPod and the tariff reduction to determine the likely impact on the equilibrium price and quantity of Sony Walkman-type products. Show your answer graphically.

Suppose there is a soda tax to curb obesity. What should a reduction in the soda tax do to the supply of sodas and to the equilibrium price and quantity? Can you show this graphically? Hint: Assume that the soda tax is collected from the sellers.
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