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Not everyone holds debt, crowds out private investment- forces private businessescompete with gov. Bonds for investor dollars Reduce wages, less gov. Spending on programs, 1.6 1. What is the relationship between prices and demand for a product? As prices decreases, there are a larger pool of willing buyers, with higher prices, there will be less demand. 2. How is market equilibrium achieved? Describe the circumstances under which the price for gasoline would have returned to equilibrium in the United States after Hurricane Katrina. Equilibrium- quantity demand equals the quantity supplied. Achieved through quantity and price adjustments that occur automatically. 3. Draw a graph that shows an equilibrium point for supply and demand. 1.7 What is meant by market structure? The number of suppliers in a market defines then the market structure. How the different companies interact with other companies in the space, and how much it takes of the market share of potential customers. Compare and contrast perfect competition and pure monopoly. Why is it rare to find perfect competition? Pure monopoly- single firm accounts for all industry sales of a particular good or service. There are Barriers to entry, factors that prevent new firms from entering the industry. Technological or legal reasons are usually why. Perfect competition- many firms are in the market, firms offer products that are close substitutes but still differ from one another, relatively easy to enter the market How does an oligopoly differ from the monopolistic competition? 1. How does an oligopoly differ from monopolistic competition? Few firms produce most or all of output Large capital requirements or other factors limit number of firms What one firm does has an impact on other firms
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