Chapter 2.2, Problem 5R

To determine

Increase in price due to lack of competition.

Explanation of Solution

Mr. S lives in a locality where there is a single vegetable shop. Mr. S has no other option but to buy vegetables from that seller. Theseller has no fear of competition as there is no any other vegetable shop. In that case seller charges higher prices and he has to pay if he wants vegetables. This shows that lack of competition caused S to pay higher prices. On the other hand, if there were more than one seller, every seller tries to keep the price lower to attract more customers and as a result Mr. S could get vegetables at lower prices.

Economics Concept Introduction

Introduction:

Competition: it refers to the rivalry among firms that produces similar products to win more customers by reducing prices.