Chapter 2, Problem 1RQ

To determine

Assumption of supply and demand model.

Explanation of Solution

The supply and demand model explains the price determination by the interactions of the supply and demand in the market. The market equilibrium is attained when the supply is equal to the demand. Some of the assumptions of supply and demand model are given below.

• More number of buyers and sellers: In the market, there is no restriction for producer and consumer for entry and exit. More number of buyers and sellers are participated in the market activity.
• Single market: The demand and supply depicts the single market. In other words, the supply and demand indicates the market situation of single goods.
• Homogeneous goods: The goods produced in the market are homogenous and perfect substitute with each other.
• Market information: All the market information is available to all the producer and consumers.
• Price taker: Since, there is more number of producers and consumers that exist in the market, individual person cannot influence the market decision. The price and quantity is determined by the interaction between the total demand and supply. Consumer and producers are price takers.

Economics Concept Introduction

Demand: Demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Supply: Supply is the quantity of goods and services that people are willing to sell at a particular price, in a given period of time.