1. What is a competitive market?

Briefly describe a type of market that is not perfectly

competitive.
A competitive market is a market in which there are many buyers and sellers, where no
single participant can dictate the price or control the market. In this type of market, prices are set
by the forces of supply and demand.
A market that is not perfectly competitive is a monopolistic market. In a monopolistic
market, there is only one seller who controls the entire market and has the power to set the price.
There may be barriers to entry preventing other firms from entering the market and competing
with the dominant seller. This type of market structure can lead to higher prices and reduced
consumer choice.

2. Does a change in consumers’ tastes lead to a movement along the demand curve or to a
shift in the demand curve? Does a change in price lead to a movement along the demand
curve or to a shift in the demand curve? Explain your answers.
A change in consumers' tastes leads to a shift in the demand curve, not a movement along
the demand curve. This is because a shift in the demand curve occurs when there is a change in
any of the determinants of demand, such as consumer income, preferences, expectations, or the
availability of substitute products. A change in price, on the other hand, leads to a movement
along the demand curve, as it represents a change in quantity demanded at a given price level.
Therefore, a change in price does not shift the demand curve, but only results in a movement
along the existing curve.

3. Does a change in producers’ technology lead to a movement along the supply curve or to
a shift in the supply curve? Does a change in price lead to a movement along the supply
curve or to a shift in the supply curve? Explain your answers.
A change in producers' technology causes a shift in the supply curve, rather than a
movement along the curve. This is because technology affects the cost of production, which, in
turn, affects the quantity of output producers are willing and able to supply at any given price
level.
On the other hand, a change in price causes a movement along the supply curve. An
increase in price leads to an increase in quantity supplied, while a decrease in price leads to a
decrease in quantity supplied, holding all other factors constant. This is known as the law of
supply. However, if there is a change in any other factor that affects supply, such as a change in
technology or input prices, then the entire supply curve shifts.

4. Describe the role of prices in market economies.

Prices play a crucial role in market economies as they serve as a signal for both producers
and consumers. In a market economy, prices are determined by the forces of supply and demand,
where supply represents the amount of a product that producers are willing to sell and demand
represents the amount of a product that consumers are willing to purchase. When the demand for
a product exceeds the supply, the price of the product tends to increase, and when the supply
exceeds the demand, the price tends to decrease. Prices help to allocate resources efficiently and
effectively by directing resources to where they are most valued, and they also provide
incentives to producers to increase or decrease production based on market conditions. Overall,
prices play a critical role in market economies by facilitating the exchange of goods and services
and providing information to producers and consumers.
5. Define the price elasticity of demand. Explain the relationship between total revenue
and the price elasticity of demand.
The price elasticity of demand = (percentage change in quantity demanded) / (percentage
change in price). The price elasticity of demand can be classified as elastic, inelastic, or unit
elastic, depending on the magnitude of the response of quantity demanded to a change in price.
The relationship between total revenue and price elasticity of demand is as follows:
- If the demand for a product is inelastic (PED < 1), a decrease in price will lead to a decrease in
total revenue, while an increase in price will lead to an increase in total revenue.
- If the demand for a product is elastic (PED > 1), a decrease in price will lead to an increase in
total revenue, while an increase in price will lead to a decrease in total revenue.
- If the demand for a product has unit elasticity (PED = 1), a change in price will not affect total
revenue.

6. Define the price elasticity of supply. Explain why the price elasticity of supply might be
different in the long run than in the short run.
The price elasticity of supply is a measure of the responsiveness of the quantity supplied
of a good or service to changes in its price. It is calculated as the percentage change in quantity
supplied divided by the percentage change in price. The price elasticity of supply can be either
elastic or inelastic.
In the short run, the price elasticity of supply is often relatively low, as it can take time
for producers to adjust their production levels in response to changes in price. For example, if the
price of oil increases rapidly, oil companies may not be able to immediately increase their
production to meet the higher demand due to factors such as capacity constraints and the time it
takes to explore and develop new oil fields. Therefore, the short-run price elasticity of supply for
oil might be relatively inelastic.
In the long run, however, the price elasticity of supply is often higher, as producers have
more time to adjust to changes in price by, for example, expanding their production capacity or
shifting resources into more profitable sectors. Additionally, in the long run, new producers may
enter the market and existing producers may exit the market, further affecting the price elasticity
of supply. Therefore, the long-run price elasticity of supply for a particular good or service may
be more elastic than the short-run price elasticity of supply.

7. What do we call a good with an income elasticity less than zero? If a fixed quantity of a
good is available, and no more can be made, what is the price elasticity of supply?
A good with an income elasticity less than zero is called an inferior good.
If a fixed quantity of a good is available and no more can be made, the price elasticity of supply
is zero. This means that the supply is completely inelastic and the price will not change
regardless of the demand for the product.

8. How might a drought that destroys half of all farm crops be good for farmers? If such a
drought is good for farmers, why don’t farmers destroy their own crops in the absence of a
drought?
A drought that destroys half of all farm crops might be good for farmers in the sense that
it can reduce the supply of crops, leading to an increase in their market price. In other words,
when the supply of a commodity is reduced, its price tends to go up due to the imbalance
between supply and demand. However, it is worth noting that this is not a desirable situation for
farmers as they still experience losses due to the reduced yield.
As for why farmers don't destroy their own crops in the absence of a drought, it is
because they rely on their crops for income and food. Destroying their crops would mean losing
their source of income and food. In addition, it is illegal and unethical to destroy crops just to
create an artificial scarcity and drive up prices. Farmers generally aim to produce as much as
possible to increase their income and meet market demand.