Question

Hi. Can someone explain the following question to me? I think I understand it but am not 100% sure

1. Graphical response. Consider this chart for the supply of soup from manufacturers, and the demand for soup by retailers. The price shows how much retailers pay for the soup that they purchase from manufacturers. $4.00 $3.50 Manufacturer Supply $3.00 Price of Soup (per Can) $2.00 $1.50 Retailer Demand $1.00 $0.50 $0.00 14 6 8 10 12 Quantity of Soup Sold to Retailers (Million Cans per Year) Suppose a small number of powerful retailers have oligopsony market power over their suppliers. Indicate on the chart above the approximate resulting price and quantity for retailer purchases of cans of soup from manufacturers.

Answer 1

The equation depicted in the graph shows a situation where market demand matches the supply at a given price.This indicates the optimal pricing condition where buyers agree to purchase the seller's goods the given price.The point where the demand curve intersects the supply curve is the equilibrium point or simply put, the market determined demand and supply at the corresponding price level.

In the graph this point can be easily seen at the price level of $1.5 where quantity demanded is more than 8 million cans of soup i.e. 9 million cans.

If some buyers have a dominant position i.e.oligopsony, then the demand curve may shift downward resulting in the changed equilibrium point i.e. the price level would be lowered because of the dominant position of some buyers who demand lower prices and high volume purchases.