Question

2. In each of the following examples, discuss which market model appears to best explain the behav- ior described:

a. Corn prices reached record highs in the United States in August 2012, given the worst drought in decades. However, by October these prices started to drop again as countries including

China, Japan, and South Korea began to pur- chase from producers in other countries such as Argentina and Brazil.13

b. In 2012, Staples Inc., OfficeMax Inc., and Office Depot Inc. were all closing many stores, decreasing the size of their stores, and focus- ing more on online operations. All three chains struggled to deal with changing consumer shopping habits as consumers tested equip- ment in the stores and then made purchases online.

Answer 1

a)

Since there are a large number of consumers and large number of producers (farmers in this case) in the corn industry and also the product supplied is homogeneous in nature, we can safely assume that the market is an example of "perfect competition" where the market is firm taker. This means a single farmer doesn't the ability to influence the market of the crops. When there was droughts in the US, the demand of the crops increased drastically and the supply was not enough to fulfill it. This was reflected in the market due to very high prices of crops. However as the time passed, other countries started importing from other countries reducing the demand from US. Thus the shift in the demand curve lead to the reduction in the prices of the crops.

b)

This is a case of oligopoly where a small number of firms control most of the market. Since, there are only a small number of competitors and it is easy to lose market share, each person keeps track of their competitors activities and form their strategies according to it. For example, if one of the firm has decreased its offline stores and increased the sales online, others had to follow the same too to avoid their market share being lost in the online front since consumers tastes were changing and they weren't any more interested in making purchases in the store.

Answer 2

pure competitive market model