Supply and Demand Homework Sheet 1) In a competitive market, if the price is abo

Question

Supply and Demand Homework Sheet 1) In a competitive market, if the price is above the equilibrium point but there's nothing like a price floor that keeps it there, it will naturally fall back down to the equilibrium price. Explain why it doesn't just stay above the equilibrium point. 2) (Step-by-Step Question 2.B) Your Aunt Debby has come to you offering to pay you if you make large signs to advertise her business. The materials for each sign cost $20, and you have to spend your own time painting them. Make your own supply schedule, thinking about the value of your own time and price you'd need to be paid for each sign to make Qs 1, 2, and 3 signs. Then, graph your supply curve.

Explanation / Answer

1) In a market,the prices of the goods are usually set by the seller.The buyer can either accept the good at the given prices or refuse to buy it.In a competitive market,however buyers have more powers as all the potential buyers can refuse to accept the given prices and not buy the product.There exist a surplus as quantity supplied will be greater than quantity demanded and the producers will not be able to sell all their products so,they will offer their goods at a lower price to the consumers after gathering as much market information as possible.This will lower the current market price until the price falls to the equilibrium price.This is a property of an efficient market in which competition plays a key role as the market is quick to adjust to the prevailing conditions in the market.

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