Question

2. Consider the markets for pens and iPhones.

Are both markets likely to be perfectly competitive? Consider each one separately and explain your reasoning.

or a perfectly competitive market, explain why the market equilibrium is stable?

Now explain why it is efficient. What do economists mean by “efficient” in this context? Illustrate with an appropriately labeled figure.

Consider the market for pizza. List the factors that might shift a demand curve (the “other things being equal”, OTBE) and give an example of each—a change and what happens to the demand for pizza.

Again consider the market for pizza. List the factors that might shift a supply curve (the OTBE) and give an example of each—a change and what happens to the supply for pizza.

Answer 1

No, the market for pens and iphones are not perfectly competitve as in case of the markets of pens we may have a large number of firms who operate in the market but each of them enjoy a slight market power to influence the price of their product. so we can not say that they are perfectly competitive. same goes with the market for iphones,as there might be other companies producing similar kinds of products but they are not producing hohmogeneous products so it is also not the perfectly competitive market.

In case of perfectly competitive market the equilibrium is stable, the reason for this is that if there is any kind of imbalance in the market, it is capable of restoring back the equilibrium by making adjustments in market price. for example if the is a sudden increase in the market demand and supply remains the same then it will create a shortage, so in this situation the market price increases and as price rises some consumers stop buying the product as a result the market gets back to it's equilibrium point. same thing can be applied to the case when demand decreases or supply increases or decreases.

Factors that shifts the demand curve for pizza

1. Taste and preferences of people: if the taste and preferences of people is greater for pizza then the people will demand more pizza other things being equal so as a result the demand curve for pizza will shift to the right and when the taste and preference for pizza decreases then the market demand curve will shift down.

2.Income of the consumer: other things being equal if the income of the consumer increases then they will demand more pizza and the demand curve for pizza shifts to the right and vice versa

3. Nature of the good: depending on the increase in income if the consumer spends more on a particular product then it is a normal good that is when there is an increase in the income of a consumer then he will buy more of that product so the demand for the good will rise but if with the increase the consumer starts spending less on buying that particular good then it is an inferrior good so if with an increase in income the consumer buys less of the product it's demand curve will shift down.so here if the consumer spends more on increase in his income then demand for pizza will rise and if he spends less then demand for pizza will go down and demand curve shifts down.

4. Price of related goods: there can be two type of related goods one is substitues another one is compliments, when we consume two goods   together we call it compliments for example we take pizza with some pizza sauce so we can call pizza and pizza sauce compliments and if we take any one particular good instead of other then they are substitutes like for example we can assume that pizza and burger are substitutes, so here if the price of pizza sauce decrases then people can have more pizza sauce and also they can demand a greater amount of pizza on the other hand as in our example we took pizza and burger as substitutes then if burger price declines then people would probably buy less pizza and more burger as they can get the satisfaction by consuming extra amount of burger so here in this case demand for pizza would decline.

Future expectation: if the people think that in future the price for pizza would rise then they would buy pizza a larger amount as they expect that the price of pizza will rise and they will not be able to buy it so they can demand today a larger amount. and the demand curve will shift right

Size of the population: if there is a larger number of population demand will obviously  be higher, and with a lower number of population demand will also go down

Factors causing a shift in supply curve:

1.Input prices: the firms use a number of inputs to produce a particular good, here in our example if we consider the production of pizza then we can say that we need flour,cheese,sugar and different herbs so if the price of any of these inputs increases then he producer will face higher production costs and it will be less profitable for him to produce more pizza and as a result the producer would produce less pizza. so the supply curve of pizza will shift left

2.Numbers of sellers: when more sellers start producing a particular product then the supply of that particular good incerases like in our case when more firms start producing pizza the market supply will rise and the supply curve for pizza will shift right.

3.  Technology: the use of advance technology makes the production of a particular good more profitable as the productivity increases, for example if a man makes pizza bare handed he will take more time but if he has some machines which will increases his productivity so that he can make more pizza at a given time,so it will incrase the supply of pizza and will shift the supply curve right. now an important thing to notice is the technology is adapted only if it increases productivity otherwise sellers will stick with the technology they already have with them.

4.Expectations: expectations play an important role in deciding the supply. if the suppliers expect that the price of pizza will rise in the future they will reduce their supply of pizza at present and they will increase supply when the price will rise and it will be profitable for them. for example in festive season demand for pizza,burgers increases and as a result the supply also increases at that time, so it will shift the supply curve of pizza to the right.