CHAPTER 4: Questions for Review

1. What is a competitive market? Briefly describe a type of market that is not perfectly
competitive.

A competitive market is a type of market wherein there are many buyers and sellers that
they have little influence and impact on the market price. Conversely, there is a market
type with only one seller. The seller has control and sets the price. This type of market is
commonly known as a monopoly.

2. What are the demand schedule and the demand curve, and how are they related? Why
does the demand curve slope downward?

The demand schedule is a table that shows the relationship between the price and the
quantity demanded. It presents the quantity demanded at each price. On the other hand,
a demand curve is a graph of the relationship between price and quantity demand. An
increase in price would result in a decrease in demand, inversely a decrease in price
would yield an increase in demand. Because of this inverse relationship between the
price and the quantity demanded, the demand curve slopes downward.

3. Does a change in consumers’ tastes lead to a movement along the demand curve or a
shift in the demand curve? Does a change in price lead to a movement along the
demand curve or a shift in the demand curve? Explain your answers.

A change in consumers’ taste will not lead to a movement along the demand curve.
Instead, it will shift the demand curve. A movement along the demand curve only
happens when there is a price change because when the price increases, the quantity
demanded decreases, and when the price decreases, the quantity demand increases.
All these will only result in a movement along the demand curve. However, a change in
another variable aside from price will shift the demand curve as consumers’ tastes will
increase or decrease the quantity demand for any given price. For instance, if
consumers are becoming health-conscious, they may be willing to pay more for healthy
options, despite the price.

4. Popeye’s income declines, and as a result, he buys more spinach. Is spinach an inferior
or a normal good? What happens to Popeye’s demand curve for spinach?

Since popeye’s income declined, which led him to buy more spinach, the spinach is
considered an inferior good. The concept behind an inferior good is when the income of
an individual falls, the demand for a particular good rise. In this scenario, Popeye’s
demand for spinach increased, owing to the decline of his income.

5. What are the supply schedule and the supply curve, and how are they related? Why
does the supply curve slope upward?

The supply is a table that shows the relationship between the price and the quantity
supplied. In other words, it is a table that presents the quantity supplied at each price.
Meanwhile, the supply curve is a graph of the relationship between the price and the
quantity supplied. Moreover, the supply curve is upward because the relationship
between the price and the quantity supplied is proportional. The quantity supplied
increases when the price increases and the quantity supplied decreases when the price
decreases.

6. Does a change in producers’ technology lead to a movement along the supply curve or a
shift in the supply curve? Does a change in price lead to a movement along the supply
curve or a shift in the supply curve?

A change in producers’ technology will not lead to a movement along the supply curve.
Instead, it will cause a shift in the supply curve. A movement along the supply curve only
 occurs when there is a change in the price. For example, if the price for a particular
product falls, suppliers would supply less. Such phenomena would only cause a
movement along the supply curve. However, any changes in variables aside from price,
such as a change in producers’ technology, would shift the supply curve. For instance, if
a supplier buys a high-quality machine that can create many pencils effectively and
efficiently, it will decrease labor costs. As a result, suppliers would be willing and able to
supply a lot at every price point.

7. Define the equilibrium of a market. Describe the forces that move a market toward its
equilibrium.

Equilibrium refers to the phenomenon in the market wherein the quantity supplied is
equal to the quantity demanded. By plotting this in a graph, the point at which the
quantity supplied intersects the quantity demanded is called the equilibrium. Moreover,
Equilibrium in the market happens due to the actions of buyers and sellers. Their actions
are the key forces that move a market toward its equilibrium. For instance, when there is
a surplus of products, suppliers would solve this by decreasing the price to attract the
consumers and increase demand. As a result, equilibrium is achieved.

8. Beer and pizza are complements because they are often enjoyed together. When the
price of beer rises, what happens to the supply, demand, quantity supplied, quantity
demanded, and price in the market for pizza?

If the price of beer rises, the demand for pizza will decrease, thus the demand curve will
shift. Due to this, there will be a decrease in the quantity demanded. However, the
supply curve for pizza will not shift since the price change of beer will not directly affect
the supply of pizza. There will only be a movement along the supply curve. Since the
demand for pizza has decreased, suppliers would not be willing to supply more, thus the
quantity supply will decrease. As a result, the price of pizza will also be decreased as
suppliers are trying to attract customers to buy more.

9. Describe the role of prices in market economies.

The role of prices in market economies serves as the driving force behind the buying and
selling behavior of the people in the market. To expound more on this, prices are the
signals that guide the allocation of resources, it determines who produces each good
and how much is produced.