Exercises: How markets work and business opportunities

Explain what a market is and why it does not need to be a physical place. Name three different markets you use (a physical one, an online one, and one for 'things' that do not look like goods, such as private tutoring hours).

State the law of demand and the law of supply in your own words. Apply them to this case: at the school fair, the crêpe stall lowers its price from $3\ \text{€}$ to $2\ \text{€}$; what do you expect to happen to the quantity students want to buy and the quantity the stall would want to sell?

The diagram shows the market for bracelets at the school fair: the demand curve (D), the supply curve (S), and the point where they intersect (E).

1. a) Read the equilibrium price and quantity from the graph.
2. b) Explain what that point E means: what happens to the surplus bracelets or to the buyers left without a bracelet at that price?

Explain who 'calls the shots' in a market: can the seller set any price they want? Use the example of the fair's crêpe stall: if it prices one at $10\ \text{€}$, what happens? And at $0,50\ \text{€}$? Conclude by explaining how buyers and sellers 'negotiate' without speaking to each other.

Classify each event according to whether it affects the supply or the demand for strawberries in your city: (a) a frost spoils half the harvest; (b) a study says strawberries are very healthy and having them for breakfast becomes fashionable; (c) the price of the fuel used by lorries rises; (d) a TV series comes out in which the main character runs a strawberry shop.

Explain what a surplus is (when there is product left over) and a shortage in a market (when there is not enough), with this case: one school market stall made $80$ sandwiches and sold $35$; another made $20$ Spanish omelettes and they sold out in $10$ minutes. What should each stall do next year with price and quantity?

Name the two 'sides' of any market and an example of each in these specific markets: the labour market for summer camp leaders, the flat rental market in your city and the second-hand video game market. Who supplies and who demands in each case?

Explain what competition between sellers is and how it benefits the buyer, with an example from your neighbourhood: two cafés opposite each other. Name two things they can do to compete without lowering prices and one consequence if one of them closes.

In the juice market at the fair, the following data was recorded:

1. a) State the equilibrium price and justify your answer.
2. b) Explain what disequilibrium exists at $1\ \text{€}$ and $3\ \text{€}$, and how that pushes the price towards equilibrium.

Suddenly it becomes fashionable among nearby secondary schools to wear your cooperative's bracelets. Explain which curve shifts, in which direction, and what is to be expected of the new equilibrium price and quantity. What should the cooperative do if it wants to ride this wave?

A lemonade stall next to the sports centre analyses its environment. Classify each factor into microenvironment (near, directly affects the business) or macroenvironment (general, affects everyone): (a) another juice stall $50$ metres away; (b) the nationwide rise in the price of sugar; (c) the lemon supplier failing to deliver on Mondays; (d) teenagers becoming increasingly concerned about sugar; (e) a new law on allergens. Explain the difference in your own words.

In the market for tickets to the school concert ($5\ \text{€}$ a ticket, $150$ tickets), $300$ people have signed up.

1. a) Describe the mismatch with the language of the market and explain what would happen to the price if tickets could be freely resold.
2. b) The organisers don't want to raise the price, for fairness: propose two alternative allocation systems (a draw, first come first served, priority for helpers) and analyse what each one encourages.

The price of beach bike hire is $8\ \text{€}$ an hour in July and $4\ \text{€}$ in October, with the same costs for the company. Explain what has changed in the market between July and October, which curve has moved and why charging $8\ \text{€}$ in October would leave the bikes standing idle. Is charging more in July 'ripping people off'? Argue both sides.

Your team sells bracelets at $3\ \text{€}$. You estimate that at $2\ \text{€}$ you would sell $120$ units and at $4\ \text{€}$, only $60$. Materials cost $1\ \text{€}$ per bracelet and the stall, $30\ \text{€}$ fixed.

1. a) Calculate the expected profit at each of the three prices ($2$, $3$ and $4\ \text{€}$) assuming sales of $120$, $90$ and $60$ units respectively.
2. b) Argue which price you would choose and what other market information you would like to have before deciding (competition, who buys).

The council subsidises the school canteen menu and it costs families $4\ \text{€}$ instead of the $7\ \text{€}$ it costs to produce. Explain what effect the subsidy has on the quantity of canteen meals demanded, who pays the difference and why a government may want to intervene in a market like this. Mention one possible unwanted effect.

A village had three bakeries; two have closed in five years and the remaining one sells bread $25\ \%$ more expensive than the district average. Analyse the situation with the language of the market: what has happened to supply, what power the remaining bakery now has, and which three options the residents have (including one that a group of young people could set up as an entrepreneurial project).

On Sunday mornings, queues of $20$ minutes form at the only open bakery in the neighbourhood; the other two are closed. Nobody sells takeaway pastries in the nearby park, which is full of families.

1. a) Describe the imbalance between supply and demand there, using market terminology.
2. b) Propose a concrete business opportunity based on that imbalance and analyse two risks that could cause it to fail.

Two friends want to set up a mobile homemade lemonade stand on Saturday mornings next to the municipal sports center. Before starting, they gather the following information from the environment:

1. The town council requires a public space occupancy permit with a fixed fee of $40\ \text{€}$ per month and a food handler's certificate.

2. The sports center's cafeteria sells industrial soft drinks for $2\ \text{€}$, and its regular clientele complains that there are no natural drinks.

3. The wholesale price of lemons has increased by $30\ \%$ due to a pest in the region.

4. The weather forecast predicts rain or temperatures below $12\ ^\circ\text{C}$ during four of the six months of the season.

1. a) Classify each of the four factors into the microenvironment or macroenvironment. Justify which of them most lethally threatens the initial viability of the project, differentiating between variable costs and barriers to entry.
2. b) Design a redesign of the business model that allows bypassing the two largest constraints detected (legal and climatic) by collaborating with an agent of the microenvironment instead of competing against it.

So that 'nobody goes without a snack', the school market organising team sets a maximum price ceiling of $1\ \text{€}$ per portion when the equilibrium would be $2,50\ \text{€}$. After half an hour, nothing is left and many students leave without a snack while others have bought three portions.

1. a) Explain using supply and demand why shortages occur.
2. b) Propose two solutions that maintain the community spirit without causing queues or reselling, and analyse their effects.

At the school market there are four sweet stalls and only one fruit stall. The fruit one sold out in an hour at $2\ \text{€}$ a portion; the sweet ones had half their stock left over at $1,50\ \text{€}$.

1. a) Explain what market signals each result is sending and what next year's teams should learn about where the opportunity was.
2. b) If five fruit stalls show up next year, predict with supply and demand what will happen to prices and sales, and propose how to stand out without lowering the price.

A delivery app charges 'surge pricing': when it rains or there is a match on, the same trip costs twice as much. Users complain; the company says this is how it gets more riders out on the street.

1. a) Explain with supply and demand what the price rise does at those moments (to the riders and to the customers who can wait).
2. b) Assess the measure: does it balance the market or abuse people's need? Propose a transparency rule or a cap that would improve the system and defend it.

Your team has spotted that there is nowhere in the neighbourhood to get a bicycle fixed in under a week: the only repair shop is running $10$ days late with $300$ bikes on its list.

1. a) Describe the market mismatch and formulate the business opportunity: what you would sell, to whom and with what concrete promise.
2. b) Analyse three risks of jumping into that gap (maybe it is empty for a reason: lack of mechanics, seasonality, low margins) and what you would check before investing $200\ \text{€}$ in tools.

The school's second-hand textbook market works like this: new books cost $28\ \text{€}$; second-hand ones sell for between $10\ \text{€}$ and $15\ \text{€}$ depending on condition. Every September there are more buyers than books and every June, more sellers than buyers.

1. a) Explain with supply and demand why the average price falls in June and rises in September, and calculate what a student would gain by buying in June ($11\ \text{€}$) and selling the following September ($14\ \text{€}$) compared with buying new.
2. b) Propose how the cooperative would organise a stable book bank: at what price it would buy and sell, what it would do with the margin, and why that 'organised market' can be better than the chaotic September bartering.

'The fair price is the one that covers costs plus a reasonable profit; anything else is speculation.' Against that: 'the fair price is the one buyer and seller freely accept.'

1. a) Summarise the best argument of each position with an example (lemonade on the beach, a one-off concert ticket).
2. b) Take a reasoned stance and explain in which specific cases you think a market needs an external rule on prices (medicines, rents, face masks in an epidemic) and in which it does not.