Unit 2 Answers to Practice Questions:Chapter 31. Explain what is meant by a purely competitive market.A purely competitive market is an institution or mechanism which bringstogether large numbers of independently acting buyers and sellers who want toexchange some standardized product. If the product is not standardized, thenthe market is not “purely competitive,” although it may be very competitive.Examples of purely competitive markets are a central grain exchange, a stock market or a market for foreign currencies where there are many buyers andsellers acting independently. [text: E p. 39; MA p. 39; MI p. 39]
2. Define “demand.”Demand is a schedule which shows the various amounts of a product buyersare willing and able to purchase at each price in a series of possible pricesduring a specified period of time. Demand portrays alternative price/quantitypossibilities which can be set down in a table. The key point to be recognized isthat demand is more than a statement of quantity purchased at a certainprice; it is a schedule of quantities which will be demanded at various prices,other things being equal, for a specified period of time. [text: E p. 40; MA p. 40;MI p. 40]
3. State the law of demand and explain why the other-things-equal assumption iscritical to it.
The law states that, other things being equal, as price increases, the corresponding quantity demandedfalls. Restated, there is an inverse relationship between price and quantity demanded with everything elseheld constant. The other-things-equal assumption refers to constant prices of related goods, income,tastes, and other things that affect demand besides price. The law of demand only looks at the relationship between price and quantity demanded. [text: E p. 40; MA p. 40; MI p. 40]4. Give three explanations for the law of demand: