Question

The market for hot dogs on the streets of New York City can be considered close to a perfectly competitive market. Because there are so many individuals buying and selling hot dogs: there is a shortage of hot dogs. there is a surplus of hot dogs. market forces set the price in the market. firms are able to make large economic profits. firms cannot make positive accounting profits.

Answer 1

Answer: market forces set the price

This is the demand and supply function of hot dogs that satisfies the self-interest of buyers and sellers respectively – buyers want lower price and sellers want higher price. The intersection of demand and supply is equilibrium, where the price is set at a quantity for transaction. This is the act of market force.  

As long as there is equilibrium there will be no shortage or surplus.

Firms may earn profit or loss based on the stand of average total cost – if such cost is lower than price there is economic profit, if such cost is higher than price there is economic loss, and if such cost is equal to price there is normal accounting profit.