ECO 1104 Lecture Notes - Lecture 6: Ice Cream Cone, Perfect Competition, Takers

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26 Nov 2017

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Chapter 4: the market forces of supply and demand part 1. In these markets buyers and sellers meet at a specific place and time, where auctioned helps set prices and arrange sales: less organized. Example: market for ice cream in small town. Buyers of ice cream do not need to meet all at the same time and place, the sellers are in different places and offer various products. There is no auctioneer, sellers post a price for an ice cream cone, each buyer decides how much ice cream to buy. He has little reason to lower the price. For instance, the wheat market is a perfectly competitive market: non-perfectly competitive markets that have one seller that sets the price is called a monopoly. For instance, your local cable company may be a a monopoly as they are the only cable company of which you can purchase that service. Demand: examining the behaviour of the buyer.

Related Questions

The demand for ice cream is given by Q D = 20 - 2P, measured in gallons of ice cream. The supply of ice cream is given by Q S = 4P - 10. Suppose that the government legislates a $1 tax on a gallon of ice cream, to be collected from the seller.

a) As a result of the tax, what is the price paid by buyers?

b) What is the price received by sellers?

Hint: You need to determine the consumer and producer burden of the tax. First, find the equilibrium price and quantity. Then, determine the elasticity of demand and supply. Then, use the share of the tax formula provided to you to determine the burdens. After, that you add the consumer burden to the equilibrium price to find the buyer price. Subtract the producer burden from equilibrium price to find seller price.

olivemoose752

There is no purely economic argument against a free market in body parts. With large numbers of potential sellers and large numbers of buyers, there is little risk of the market becoming monopolized. Doctors performing the transplants would be in a position to judge the quality of the purchased organs. A higher price would lead more people to sell their kidneys, etc., while a lower price would put the parts within the means of more buyers â so such markets would be able to continually adjust to supply and demand conditions. But many people would find such markets offensive. The sellers would most certainly be considerably poorer than the buyers, so serious inequality issues are involved. There is also the likelihood that some of the organs on these markets were not voluntarily sold, particularly when they come from countries with corrupt police forces. Learn about âtransplant tourismâ in this article from The Atlantic and read about legalizing international trade in organs in Time. Several perspectives from economists are presented at EconDebates Online (choose the âGovernment and Economyâ link, and then scroll down.) What are some of the problems, from an economic standpoint, with the current rules governing organ transplantation in the U.S.? What are some of the ethical concerns about legalizing organ trade? Do you support the legalization of a market for organ donations? Explain your reasoning, being careful to list specific ethical issues and economic considerations. Could buying and selling organs result in fewer organs available for transplant?

Article Links:

https://www.theatlantic.com/health/archive/2011/11/why-legalizing-organ-sales-would-help-to-save-lives-end-violence/248114/

http://content.time.com/time/world/article/0,8599,1833858,00.html

http://www.swlearning.com/economics/econ_debate.html

1. Characteristics of competitive markets

The model of competitive markets relies on these three core assumptions:

1.	There must be many buyers and sellers a few players can't dominate the market.
2.	Firms must produce an identical product buyer must regard all sellers' products as equivalent.
3.	Firms and resources must be fully mobile, allowing for free entry into and exit from the industry.

The first two conditions imply that all consumers and firms are price takers. While the third is not necessary for price-taking behaviour, assume for this problem that a market cannot maintain competition in the long run without free entry.

Identify whether or not each of the following scenarios describes a competitive market, along with the correct explanation of why or why not.

Is the scenario	Competitive?
Dozens of companies produce plain white socks. Consumers regard plain white socks as identical and don't care who manufactures their socks.
In a major metropolitan area, one chain of coffee shops has gained a large market share because customers feel its coffee tastes better than that of its competitors.
Scholastik Inc. owns the U.S. copyright to a popular book series. It is the only company with the legal right to publish books in the series in the United States.
In a small town, there are two providers of broadband Internet access: a cable company and the phone company. The Internet access offered by both providers is of the same speed.

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ECO 1104 Lecture Notes - Lecture 6: Ice Cream Cone, Perfect Competition, Takers

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