Consider the market for wheat which is a perfectly competitive market. Is the market demand curve the same as the demand curve facing an individual producer? If not, explain how and why they are different? Illustrate your answer graphically
What will be an ideal response?
The market demand is downward sloping while the demand for an individual firm's output is horizontal at the equilibrium market price. This is because an individual producer is too small to influence the market price and must take the market price as given. At the market price, the individual seller can sell all the output she desires. The figure below shows the market demand curve and the demand curve for a single firm.
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The market demand function for wheat is Qd = 10 - 2P and the market supply function is Qs = 4P - 2, both measured in billions of bushels per year. Suppose the government wants to increase the price of wheat to $3/bushel and they impose a voluntary production reduction program to achieve their goal. How much would the government have to pay farmers?
A. $1.5 billion B. $3 billion C. $4.5 billion D. $18 billion
A manager can determine if her product is viewed as a normal good or an inferior good by considering
A) price elasticity. B) cross elasticity. C) income elasticity. D) advertising elasticity.
Normative economics is concerned with
A) value judgments. B) opinions. C) cause-effect relationships. D) observations that can be proved. E) both a and b
In the circular flow, nonprofit institutions are
a. counted as businesses. b. excluded. c. treated separately. d. counted as households.