Answer to Question #236120 in Microeconomics for Mohamed Farahat

Question

Select and name a market of any well-known product (left upon your imagination), draw its market diagram, state and name four different factors that might cause changes, showing the changes in equilibrium price and quantity.

Answer 1

Solution:

Clothes are well-known products that fall under the category of a perfectly competitive market.

A perfectly competitive market is a type of market where there is a large number of buyers and sellers selling homogenous products, with all of them initiating the buying and selling mechanism. There are no barriers of entry, there is perfect information and absence of direct competition in the market and sellers are price takers.

 

The market diagram for clothes are as follows:

 

 

 

 

The four factors that might cause changes in the product equilibrium price and quantity include the following:

·        Changes in the product price.

·        Changes in consumer's level of income.

·        Changes in tastes and preferences.

·        Changes in the price of substitute products.

 

The market diagram for clothes showing the changes due to the above factors is as below: