Chapter 4 - Chapter4 4 THEMARKETFORCESOF SUPPLYANDDEMAND...

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The Market Forces of Supply and Demand SOLUTIONS TO TEXT PROBLEMS: Quick Quizzes 1. A market is a group of buyers (who determine demand) and a group of sellers (who determine  supply) of a particular good or service.  A competitive market is one in which there are many  buyers and many sellers of an identical product so that each has a negligible impact on the  market price. 2. Here’s an example of a demand schedule for pizza: Price of Pizza Slice Number of Pizza Slices Demanded                  $  0.00                           10 0.25 9 0.50 8 0.75 7 1.00 6 1.25 5 1.50 4 1.75 3 2.00 2 2.25 1 2.50 0 The demand curve is graphed in Figure 1. 51 4 THE MARKET FORCES OF  SUPPLY AND DEMAND
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52   Chapter 4/The Market Forces of Supply and Demand         Figure 1 Examples of things that would shift the demand curve include changes in income, prices of  related goods like soda or hot dogs, tastes, expectations about future income or prices, and the  number of buyers. A change in the price of pizza would not shift this demand curve; it would only lead us to move  from one point to another along the same demand curve. 3. Here is an example of a supply schedule for pizza: Price of Pizza Slice Number of Pizza Slices Supplied                  $  0.00                             0 0.25 100 0.50 200 0.75 300 1.00 400 1.25 500 1.50 600 1.75 700 2.00 800 2.25 900 2.50 1000
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Chapter 4/The Market Forces of Supply and Demand   53 The supply curve is graphed in Figure 2. Figure 2 Examples of things that would shift the supply curve include changes in prices of inputs like  tomato sauce and cheese, changes in technology like more efficient pizza ovens or automatic  dough makers, changes in expectations about the future price of pizza, or a change in the  number of sellers. A change in the price of pizza would not shift this supply curve; it would only move from one point  to another along the same supply curve. 4. If the price of tomatoes rises, the supply curve for pizza shifts to the left because of the increased  price of an input into pizza production, but there is no effect on demand.  The shift to the left of  the supply curve causes the equilibrium price to rise and the equilibrium quantity to decline, as  Figure 3 shows. If the price of hamburgers falls, the demand curve for pizza shifts to the left because the lower  price of hamburgers will lead consumers to buy more hamburgers and less pizza, but there is no  effect on supply.  The shift to the left of the demand curve causes the equilibrium price to fall and  the equilibrium quantity to decline, as Figure 4 shows.
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54   Chapter 4/The Market Forces of Supply and Demand Figure 3                            Figure 4 Questions for Review
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