1. How does the consumer choice work and how does it effect supply and demand. 2....

1. How does the consumer choice work and how does it effect supply and demand.

2. If the average product price is declining, how does that impact the production and cost?

3. Does perfect competition work? What is an example where it does not work?

Solutions

Expert Solution

1. Consumer choices refers to the preferences of a consumer. It refers to the choices made by a consumer that maximises their utility. It helps us in analysing the demand and supply of the economy.
When a consumer prefers a certain good over others, the demand for that particular good increases which pushes the price level to increase as the demands can't be met. As a result, the supply will also rise in order to meet those demands.

2. As the average product price declines, the production will also decline because it will increase the cost of producing goods. Since the product price has decreased, it will generate less revenue and make the producers worse off.

3. Yes, perfect competition generally exists. However, for firms producing goods that require high level of investments such as oil and natural gas, electricity, etc, there won't be a perfect competition. The entry to such market becomes difficult because of the high costs to production required.

Rahul Sunny answered 1 year ago

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