Question

Scenario 1 Derek goes to the corner grocery store to pick up carrots for a salad. He notices that this store has nearly doubled its price for carrots. Not willing to pay that much, he gets into his car and drives to the grocery store farther away. He finds the exact same type of carrots there at the price he was expecting. Happy, he buys them and returns home. Scenario 2 Melissa plans to buy a new computer. She's seen commercials for a new model that has many innovative features that will be helpful to her in college. She's excited to buy this computer, but she thinks the price is high. She goes to many stores and searches online to find another computer for a cheaper price without success. Realizing that the computer is the only one with all the features she wants, she purchases it. What is the relationship between competition and consumer action in these situations?

Answer 1

In the first example, Derek went to a different store in search of cheaper carrots and was able to get carrots at the price he was willing to pay. In this case, there was competition in the carrot market. In the second example, Melissa couldn’t find a cheaper computer with the same features because only one company manufactures computers with the features she wants.

Explanation: sample answer from edmentum

Answer 2

In the carrot scenario, Derek is able to find carrots at the price he wishes to pay because one competitor offers a lower price. That competitor is successful in making a sale and competition causes the consumer to keep looking until the desired price is found. Likewise in the computer scenario, Melissa still searches in a number of places for the desired computer. Competition again is driving the consumer action of shopping around. However, in this case, the consumer is unable to find the desired price and ultimately decides that since all competitors are asking the same price, this must be a fair market price. In that case Melissa wants the model she wants and is willing to pay a higher price for it, but only after exhausting all of her available options by checking out many competitor prices.