1.0.

Introduction

Economics is split into two basic categories: macroeconomics and microeconomics.

Microeconomics is regarded as the study of business decisions and individuals while
macroeconomics is the criterion set with the individual governments and countries. This report is
based on analysis of the mentioned case study and reviews the concept of law of demand and its
application on the case study. The analysis also provides evidence of the discussion of the type
of market structure in existing markets.

2.0. Analysis

Task 1

a. Law of Demand

The scenario indicate that ‘SALE’ within hypermarkets such as Carrefour or Lulu makes people
to rush for the sale and but goods. The hypermarkets have consequently tendency to use the
concept of sales. The law of demand is the basic economics principle which states that the
higher the price will cause consumer demand to be low and the change in price indicates the
movement which actually is along the demand curve and do not reflect them to increase or
decrease the demand (Chiappori, 2017).

The law of demand is the basic concept of economics. It depends on the idea that law of supply
makes market economies and allocates resources which determine the goods prices and services
to deal with regular transactions. The law of demand state that the quantity purchase changes
inversely with price. The higher the price causes lower quantity demanded which happens due to
diminishing marginal utility. This makes hypermarket like Lulu or Carrefour to change the
purchase and serve the urgent needs successfully and add with lower value ends. In economics,
the law of demand is the basic concept and evaluates the market economies to allocate resources
and identify the prices of goods and services which are observed on daily transactions. The law
states that the purchased quantity varies inversely with price.

b. Law of Demand with Table and Graph

The law of demand reflects on the relationship among the quantity demanded with its price. It is
known as the amount demanded with increase and fall in price since there is diminishes with
price rise. The inverse relation is evident amid demand and price. The law is associated with the
direction as the quantity demanded actually changes with price. The representation is done by
slope while the demand curve makes normal negative in the length as per the demanded quantity
and price. The amount actually demanded increases when there is fall in price and also it
diminishes with the price rise. Thus, there is inverse relation expressed between demand and
price as the law is associated with the direction that has difference in quantity demand with the
change in the price.

However, the representation of the slope is reflected by the demand curve which makes the
normal negative thought to be with the inverse value of relationship based on the remaining total
value which is assumed as per law.

The assumptions regarding law of demand are:

i. There is no major change observed when it comes to consumer preferences and tastes
ii. There is constant income statement of consumers
iii. There is no major change within the customs (Hildenbrand, 2014)
iv. The commodity used should not confer with the consumer distinction
v. There should be not many substitute of the respective commodity
vi. There is need to assess if change is in the products pries
vii. There is also need to make sure that possibility of change is not evident in product that is
used
viii. The quality of the product should not be changed
ix. The consumer habits should be unchanged as per the law operation. The case when
change is evident when the conditions stop and there is lack of operation
These assumptions reflect that the details as per law of demand as in Table (1) and Figure (1):
The details above indicate that when the price is said to be of apple is OMR 5 for 100 units that
are demanded, then in case the price actually falls to around OMR. 4 while there is increase in
the demand to around 200 units. Similarly, when there is fall in price to around OMR 1 than
there is demand to increase by 600 units. In contrary the price shows decline from 600 units.

However, the figure reveals that point P connected with demand curve DD 1 indicate that the
demand is for 100 units for OMR 5 while the price actually falls to OMR 4, OMR 3, OMR 2 and
OMR 1. This clearly reveals that there are clear points such as Q,R,S and T while the demand
curve indicate that there is fall in price and there is inverse relation amid the price and demand.

Exceptions to the Law of Demand:

There are certain cases which mean the demand curve to show slope from left to right i.e. there is
a positive slope (Jiang et al, 2017). There are several circumstances which makes consumer to
actually buy more than the price and there is rise in commodity when there is fall in price as
indicated by D curve and indicated in Figure below. There are many causes for the attributed
upward sloping demand curve.
1. War:

In case there is fear in anticipation of the war while people need to begin buying the building
stocks which is for hoarding when there is increase in price.

2. Depression

In depression, there is low price of commodities regarding the demand for them is quite less
while this happens because of lack of purchase power with the clients.

Task 2

a. Market Structure and its Types

In economics, market structure is defined as the way firms can be differentiated and categorized
on the type of goods that are sold (heterogeneous/homogenous) as it reviews the operations and
have been affected by external factor elements. The market structure can be divided into the
following categories:

1. Perfect Competition

This is the type of market structure that has large number of firms to compete against one
another (Li et al, 2017). This is the case when single firm does not show major market power and
the result is that the industry as a whole has socially optimal output level as the firms have been
influenced by the prices of market.

The ideas based on perfect competition are based on the assumptions (1) the firms to enhance
profits (2) free entry and exit in the market (3) firms to sale identical goods (4) there are not
many consumer preferences.
2. Monopolistic Competition

Monopolistic competition is connected with the market structure in which there is many firms to
compete against one another. This makes the unlike perfect competition to emerge which makes
monopolistic competition to actually show increase in sale when compared with other
differentiated products. There are cases when certain degree of market power makes price charge
to be higher when compared with specific range. Monopolistic competition ensures firms have
maximized profit and they have free entry and exit in the market.

3. Oligopoly

An oligopoly market structure is dominated majorly by small firms and this shows limited
competition. The firms are able to compete with one another and this makes the collective
market power to actually drive up the price and earn maximum profit (Hong and Li, 2017). The
oligopolistic market structure is assumed to improve the profits in firm and set the prices and
assess the barriers to entry and exit in the market. This has actually made the fortune to emerge
as a practice which makes the companies to look at the structure of the powerful firms.

4. Monopoly

A monopoly is the market structure that has single firms to control entire market. This is the case
when firms with highest degree of market power actually are consumers and they have
monopolies which reduce the growth in price as they earn more profit (Azevedo et al, 2017).
Monopolies actually enhance profit and can set the price since there are high entry and exit
barriers in the market.

b. The type of market established for vegetables by His Excellency, the Wali of Baushar to
establish the large central vegetable market is perfect competition market. The perfect
competition market is characterized with different sellers and buyers as there are undifferentiated
products and lack of transaction costs with no entry and exit barriers as the perfect information is
available for the price good.

The characteristics of perfect competition market are:

 There are many buyers as well as sellers in the market

  The company has similar product
 The buyers as well as sellers have access for the perfect information regarding the price
 There are no major transaction costs
 There are no barriers for entry into or exit within the market

c. Perfect Competition Privileges by Buyers

The buyers have many advantages since there are varieties of choices available for the buyers in
the market regarding fruits and vegetables. There are low prices connected with the knowledge
and there is no transportation cost for buyers. Moreover, the buyers have no transaction costs and
there are many buyers and sellers available which shows no barriers to entry and exit in the
market (Mahoney et al, 2017). The buyers are aware that there are many firms in market to
produce similar identical goods and it is easy for new firms to actually enter the market and leave
the existing ones.

3.0. Conclusion

This report is based on economics principles and the analysis indicates the way law of demand is
applicable to the different situations. The price is identified by the market intersection and it
affects the demand and supply market as it influences with the market price within perfect
competition. Once the price in market is identified by the demand and supply forces there are
consumers in the market which actually changes and charges with low price and the conditions
are evident with the equilibrium change in market price.

References

Azevedo, E.M. and Gottlieb, D., 2017. Perfect competition in markets with adverse
selection. Econometrica, 85(1), pp.67-105.

Chiappori, P.A., 2017. Distribution of Income and the" Law of Demand". Econometrica:

Journal of the Econometric Society, pp.109-127.

Hildenbrand, W., 2014. Market demand: Theory and empirical evidence (Vol. 215). Princeton
University Press.
Hong, G.H. and Li, N., 2017. Market structure and cost pass-through in retail. Review of
Economics and Statistics, 99(1), pp.151-166.

Jiang, C., D'Alfonso, T. and Wan, Y., 2017. Air-rail cooperation: Partnership level, market
structure and welfare implications. Transportation Research Part B: Methodological, 104,
pp.461-482.

Li, Y., Nie, D., Zhao, X. and Li, Y., 2017. Market structure and performance: An empirical study
of the Chinese solar cell industry. Renewable and Sustainable Energy Reviews, 70, pp.78-82.

Mahoney, N. and Weyl, E.G., 2017. Imperfect competition in selection markets. Review of

Economics and Statistics, 99(4), pp.637-651.