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Chapter 3: Problem 8

If a market is in equilibrium, is it necessarily true that all buyers and sellers are satisfied with the market price? Brieflv explain.

Short Answer

Expert verified
No, it's not necessarily true that all buyers and sellers in a market equilibrium are satisfied with the market price. While the equilibrium price balances the overall market demand and supply, individual buyers and sellers may still find the price too high or too low based on their individual willingness to trade at a certain price.

Step by step solution

01

Understanding Market Equilibrium

Market equilibrium is a state in a market where the quantity of goods or services supplied is equal to the quantity of goods or services demanded at a particular price level. It's a state where there is no surplus or shortage in the market.
02

Buyers and Sellers Satisfaction in Market Equilibrium

In an equilibrium state, it's not necessarily true that every buyer and seller is satisfied with the market price. Although the market price is set at a level where the quantity demanded equals the quantity supplied, individual consumers and producers may have different perspectives. Some buyers may still find the price too high, while some sellers might consider it too low for their liking. However, as a collective group, the market demand and supply are balanced at the equilibrium price.
03

Example Scenarios

Consider two scenarios: a buyer who has a high individual demand and is willing to pay a higher price may not be satisfied if he has to pay more because the market price is high due to collective high demand. Similarly, a seller who could sell their goods at a higher price due to their high individual supply might consider the equilibrium price too low but their selling price is dictated by the collective market supply.

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Most popular questions from this chapter

[Related to the Don't Let This Happen to You on page 96\(]\) A student was asked to draw a demand and supply graph to illustrate the effect on the market for premium bottled water of a fall in the price of electrolytes used in some brands of premium bottled water, holding everything else constant. She drew the following graph and explained it as follows: Electrolytes are an input to some brands of premium bottled water, so a fall in the price of electrolytes will cause the supply curve for premium bottled water to shift to the right (from \(S_{1}\) to \(S_{2}\) ). Because this shift in the supply curve results in a lower price \(\left(P_{2}\right)\), consumers will want to buy more premium bottled water, and the demand curve will shift to the right (from \(D_{1}\) to \(D_{2}\) ). We know that more premium bottled water will be sold, but we can't be sure whether the price of premium bottled water will rise or fall. That depends on whether the supply curve or the demand curve has shifted farther to the right. I assume that the effect on supply is greater than the effect on demand, so I show the final equilibrium price \(\left(P_{3}\right)\) as being lower than the initial equilibrium price \(\left(P_{1}\right)\). Explain whether you agree with the student's analysis. Be careful to explain exactly what - if anything- you find wrong with her analysis.

Proposals have been made to increase government regulation of firms providing childcare services by, for instance, setting education requirements for childcare workers. Suppose that these regulations increase the quality of childcare and cause the demand for childcare services to increase. At the same time, assume that complying with the new government regulations increases the costs of firms providing childcare services. Draw a demand and supply graph to illustrate the effects of these changes in the market for childcare services. Briefly explain whether the total quantity of childcare services purchased will increase or decrease as a result of the regulations.

What do economists mean when they use the Latin expression ceteris paribus?

Years ago, an apple producer argued that the United States should enact a tariff, or a tax, on imports of bananas. His reasoning was that "the enormous imports of cheap bananas into the United States tend to curtail the domestic consumption of fresh fruits produced in the United States." a. Was the apple producer assuming that apples and bananas are substitutes or complements? Briefly explain. b. If a tariff on bananas acts as an increase in the cost of supplying bananas in the United States, use two demand and supply graphs to show the effects of the apple producer's proposal. One graph should show the effect on the banana market in the United States, and the other graph should show the effect on the apple market in the United States. Be sure to label the change in equilibrium price and quantity in each market and any shifts in the demand and supply curves.

Would you pay \(\$ 12\) for a cup of coffee? Starbucks is betting enough people will say "yes," as it launches a chain of luxury coffee shops called Starbucks Reserve. Which generation(s) do you expect Starbucks Reserve to attract: baby boomers (ages 53 and over), generation \(X\) (ages 33 to 52), or millennials (ages 13 to 32)? Briefly explain. To be successful as a luxury coffee bar, how does Starbucks need to distinguish Starbucks Reserve coffee shops from its standard Starbucks coffee shops? Source: Julie Jargon, "Middle- Market Woes Inspire Starbucks's Bet on Luxury Coffee," Wall Street Journal, December 5, 2016 .
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