Explain your answer 14 Perfect Competition and Supply and Demand LEARNING

Explain your answer 14 perfect competition and supply

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questions differ, depending on whether they’re working in the United States or in Cuba? Explain your answer. 1.4 Perfect Competition and Supply and Demand LEARNING OBJECTIVE 1. Describe perfect competition, and explain how supply and demand interact to set prices in a free market system. Under a mixed economy, such as we have in the United States, businesses make decisions about which goods to produce or services to offer and how they are priced. Because there are many businesses making goods or providing services, customers can choose among a wide array of products. The competition for sales among businesses is a vital part of our economic system. Economists have identified four types of competition— perfect competition , monopolistic competition , oligopoly , and monopoly . We’ll introduce the first of these—perfect competition—in this section and cover the remaining three in the following section. Perfect Competition Figure 1.5
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Produce, like these apples, is a standardized product available from numerous businesses. © 2010 Jupiterimages Corporation Perfect competition exists when there are many consumers buying a standardized product from numerous small businesses. Because no seller is big enough or influential enough to affect price, sellers and buyers accept the going price. For example, when a commercial fisher brings his fish to the local market, he has little control over the price he gets and must accept the going market price. The Basics of Supply and Demand
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To appreciate how perfect competition works, we need to understand how buyers and sellers interact in a market to set prices. In a market characterized by perfect competition, price is determined through the mechanisms of supply and demand . Prices are influenced both by the supply of products from sellers and by the demand for products by buyers. To illustrate this concept, let’s create a supply and demand schedule for one particular good sold at one point in time. Then we’ll define demand and create a demand curve and define supply and create a supply curve . Finally, we’ll see how supply and demand interact to create an equilibrium price the price at which buyers are willing to purchase the amount that sellers are willing to sell. Demand and the Demand Curve Demand is the quantity of a product that buyers are willing to purchase at various prices. The quantity of a product that people are willing to buy depends on its price. You’re typically willing to buy less of a product when prices rise and more of a product when prices fall . Generally speaking, we find products more attractive at lower prices, and we buy more at lower prices because our income goes further. Figure 1.6 The Demand Curve
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Using this logic, we can construct a demand curve that shows the quantity of a product that will be demanded at different prices. Let’s assume that the diagram in Figure 1.6 "The Demand Curve" represents the daily price and quantity of apples sold by farmers at a local market. Note that as the price of apples goes down, buyers’ demand goes up. Thus, if a pound of apples sells for $0.80, buyers will be willing to purchase only fifteen hundred
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