Assume there are at least 20 coffee shops in Murray KY. If, hypothetically, the price of coffee were 5, Starbucks would sell a total of 50 coffees to the whole market in Murray KY. If the price were 4, its total sales would increase to 60 coffees. This is an example of:
A market demand curve in a perfectly competitive market.
A market demand curve in a not perfectly competitive market.
A demand curve faced by one firm in a perfectly competitive market.
A demand curve faced by one firm in a not perfectly competitive market.
An individual demand curve.
This information sets the stage for a competitive market with multiple coffee shops, suggesting that it’s not a perfectly competitive market (where there would be many identical firms).
Price of Coffee
The price of coffee is a key determinant of the quantity demanded by consumers.
Starbucks’ Sales at Different Prices
You’ve mentioned that when the price of coffee is $5, Starbucks sells a total of 50 coffees to the entire market in Murray KY. When the price drops to $4, their total sales increase to 60 coffees.
Now, let’s analyze why this situation corresponds to an individual demand curve faced by one firm in a not perfectly competitive market:
Individual Demand Curve
An individual demand curve represents the quantity of a good or service that an individual firm or seller is willing to sell at different prices. In this case, Starbucks is the individual firm, and the scenario outlines how their sales change with variations in the price of coffee.
Not Perfectly Competitive Market
The presence of multiple coffee shops in Murray KY implies that it’s not a perfectly competitive market. In a perfectly competitive market, all firms sell identical products at the same price, and they have no market power to influence prices or quantities. Here, Starbucks’ ability to sell more coffee when the price drops from $5 to $4 suggests that they have some degree of control over their sales, which is characteristic of a market that is not perfectly competitive.
In summary, the scenario you’ve described illustrates an individual demand curve faced by Starbucks, a single firm operating in a market that is not perfectly competitive. This individual demand curve shows how Starbucks’ sales change in response to changes in the price of coffee, indicating that they have some influence over their sales volume, which is a feature of imperfectly competitive markets where firms can differentiate themselves and exert some control over pricing and quantities sold.
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