Chapter 4: Coordinating Smart Choices (Demand and Supply)
4.1- Describe how buyers and sellers compete and cooperate in markets
4.2- Explain how shortages and surpluses affect prices
4.3- Identify how market-clearing prices coordinate the smart choices of consumers
4.4- illustrate how changes in demand and supply affect market-clearing price and
4.1 What’s a Market?
1. What is a market?
2. You are negotiating with a car dealer over the price of a new car. Explain
where competition enters the process and where cooperation enters.
3. The Recording industry association of Americas’ (RIAA) mission is “to foster
a business and legal climate that supports and promotes our
members…intellectual property rights worldwide.” Have you ever-
downloaded music? If so, what arguments do you use to counter RIAA’s
defense of property rights.
4.2 Where do prices come from? Price signals from combining supply and demand
1. Define a shortage and explain who competes and what happens to prices.
2. Old navy decides to price a new line of jeans at $75, which covers all marginal
opportunity costs as well as a healthy profit margin. If old navy has priced
the jeans to high, what signals does the company receive? What actions might
old navy take?
3. Most provincial parks charge a fixed price for a camping permit, and allow
you to reserve specific campsites well in advance. By the time a summer
holiday weekend arrives, all the permits are taken. There is excess demand,
and no price adjustment. If you want to reserve your favorite campsite for
next year, how do you compete? And whom do you compete a