Homework 4-6

228801246-Noman(诺曼)
Chapter 4 The Market Forces Of Supply And Demand
1. What is a competitive market? Briefly describe the types of markets other than
perfectly competitive markets.
A competitive market is a scenario where numerous buyers and sellers interact to trade similar goods or
services. In such markets, no single entity has control over prices, allowing for free entry and exit of
businesses, and prices are determined by supply and demand forces.
Other types of markets include:

1-Monopoly: Controlled by a single seller or producer, resulting in limited competition.
2- Oligopoly: Dominated by a small number of large sellers, often leading to interdependent decision-
making.
3-Monopolistic Competition: Many sellers offering differentiated products, giving them some control over
pricing due to product differentiation.
2. What determines the quantity of a good that sellers supply?
The quantity of a good that sellers supply is determined by various factors:

Price of the Good: Usually, as the price rises, the quantity supplied increases due to higher profitability.
Production Costs: The expenses incurred in producing the goods influence how much a seller can supply at
different price levels
Technology: Advancements in technology can affect the efficiency of production, impacting the quantity
supplied.
Expectations: Sellers consider future prices and conditions, affecting their current supply decisions.
Government Policies: Regulations, taxes, subsidies, and other policies can alter the quantity suppliers are
willing to offer.
Chapter 5 Elasticity And Its Application

1 . Define the price elasticity of demand and the income elasticity of demand.
Price Elasticity of Demand (PED): This measures the responsiveness of the quantity demanded of a
good or service to changes in its price. It's calculated as the percentage change in quantity demanded
divided by the percentage change in price. If the PED is greater than 1, it's considered elastic (demand is
sensitive to price changes); if it's less than 1, it's inelastic (demand is less sensitive to price changes).
Income Elasticity of Demand (YED): This measures how the quantity demanded of a good or service
responds to changes in consumer income. It's calculated as the percentage change in quantity demanded
228801246-Noman(诺曼)
divided by the percentage change in income. If the YED is positive, it indicates the good is a normal good
(as income increases, demand increases); if it's negative, it's an inferior good (as income increases,
demand decreases). The magnitude of the YED also signifies the degree of responsiveness.
2)
228801246-Noman(诺曼)
Chapter 6 Supply, Demand, And Government Policies

228801246-Noman(诺曼)
1) Which causes a shortage of a good—a price ceiling or a price floor? Which causes a
surplus?
-Price Ceiling: This is a maximum price set by the government below the market equilibrium price.
When the price ceiling is below the equilibrium, it leads to increased demand (as the price is lower) and
reduced supply (as producers might be less willing to supply at that lower price). This mismatch
between demand and supply creates a shortage.
-Price Floor: Conversely, a price floor is a minimum price set by the government above the market
equilibrium price. When the price floor is higher than the equilibrium, it encourages an excess in supply
(as producers are motivated to supply more at the higher price) and a decrease in demand (as consumers
might be less willing to buy at the higher price), leading to a surplus.
Both scenarios, whether shortage due to a price ceiling or surplus due to a price floor, result from the
intervention of prices away from the equilibrium level, causing imbalances in supply and demand.
2) What determines how the burden of a tax is divided between buyers and sellers? Why?
Price Elasticity of Demand and Supply:

When demand is more inelastic compared to supply: In this scenario, buyers are less responsive to
price changes (inelastic demand), so they bear a larger portion of the tax burden. Sellers, with more
elastic supply, can't easily pass on the tax burden by increasing prices without significantly reducing the
quantity they sell.
When supply is more inelastic compared to demand: Here, sellers bear a larger burden. With
inelastic supply, sellers find it harder to adjust their production in response to the tax burden, so they
end up shouldering more of the tax, while buyers are more able to find alternatives or reduce their
quantity demanded.
Relative Elasticities:
If both supply and demand are relatively elastic, the tax burden tends to be shared more equally
between buyers and sellers because both sides can adjust their behavior and the market can reach a new
equilibrium without drastic shifts in quantity demanded or supplied.
Market Power and Ability to Shift Burden:
The ability to shift the tax burden also depends on market power. If one side (buyers or sellers) has
more market power and can influence prices more effectively, they may be able to shift more of the tax
burden to the other side.
Ultimately, the more inelastic side (whether demand or supply) tends to bear a larger portion of the tax
burden because they're less able to adjust their behavior in response to price changes caused by the tax.
The burden is allocated in a way that minimizes the impact on market participants while reflecting their
respective abilities to adapt to the tax.

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228801246-Noman(诺曼)

Chapter 4 The Market Forces Of Supply And Demand

Other types of markets include:

2. What determines the quantity of a good that sellers supply?

The quantity of a good that sellers supply is determined by various factors:

Chapter 5 Elasticity And Its Application

Chapter 6 Supply, Demand, And Government Policies

Price Elasticity of Demand and Supply:

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