tailieunhanh - Microeconomics, 7/E - Robert Pindyck, Daniel Rubinfeld

Fast food chains like McDonald’s, Burger King, and Wendy’s operate all over the United States. Therefore the market for fast food is a national market. This statement is false. People generally buy fast food within their current location and do not travel large distances across the United States just to buy a cheaper fast food meal. Given there is little potential for arbitrage between fast food restaurants that are located some distance from each other, there are likely to be multiple fast food markets across the country | Chapter 1 Preliminaries PART I INTRODUCTION MARKETS AND PRICES CHAPTER 1 PRELIMINARIES 1 Chapter 1 Preliminaries EXERCISES 1. Decide whether each of the following statements is true or false and explain why a. Fast food chains like McDonald s Burger King and Wendy s operate all over the United States. Therefore the market for fast food is a national market. This statement is false. People generally buy fast food within their current location and do not travel large distances across the United States just to buy a cheaper fast food meal. Given there is little potential for arbitrage between fast food restaurants that are located some distance from each other there are likely to be multiple fast food markets across the country. b. People generally buy clothing in the city in which they live. Therefore there is a clothing market in say Atlanta that is distinct from the clothing market in Los Angeles. This statement is false. Although consumers are unlikely to travel across the country to buy clothing suppliers can easily move clothing from one part of the country to another. Thus if clothing is more expensive in Atlanta than Los Angeles clothing companies could shift supplies to Atlanta which would reduce the price in Atlanta. Occasionally there may be a market for a specific clothing item in a faraway market that results in a great opportunity for arbitrage such as the market for blue jeans in the old Soviet Union. 2 Chapter 1 Preliminaries c. Some consumers strongly prefer Pepsi and some strongly prefer Coke. Therefore there is no single market for colas. This statement is false. Although some people have strong preferences for a particular brand of cola the different brands are similar enough that they constitute one market. There are consumers who do not have strong preferences for one type of cola and there are consumers who may have a preference but who will also be influenced by price. Given these possibilities the price of cola drinks will not tend to differ .