(For IV- Understanding ONLY)
Market – the medium in which buyers and sellers interact. (Note: its meaning is not limited to a location or geographical area, it also focuses on people who are WILLING and ABLE to buy and/or sell goods and services. Two major players/actors in the market: Buyers & Sellers Market Equilibrium: when buyers and sellers agree at a certain price and quantity to transact
Price Equilibrium: price agreed by both buyers and sellers. Quantity Equilibrium: quantity agreed by both buyers and sellers. QD – Quantity Demanded QS – Quantity Supplied
When QD is less than (<) QS, Market Surplus occurs. Ex: QD = 10 QS = 12 QD<QS - It is above the Point of Equilibrium
- There is excess supply
*When Market Surplus occurs, the Sellers will be forced to lower the price to price equilibrium.
When QS is less than (<) QD, Market Shortage occurs. Ex: QS = 10 QD= 14 QS<QD - It is below the Point of Equilibrium
- There is excess demand
*When Market Shortage occurs, the Buyers are willing to pull up the price to price equilibrium.
How to get equilibrium price and quantity?
Ex: QD = 18- 2P QS = 2 + 6P
For Price: QD = QS For Equilibrium: 18- 2P = 2 + 6P 18 – 2(2) = 2 + 6(2) -2P – 6P = 2- 18 18-4 = 2 + 12 -8P = -16 14 =14 Pe = 2 pesos Qe = 14 units Government Intervention by Setting the Price
1. Price Floor/ Price Support
* Minimum price
* Above the price equilibrium
* Market Surplus/ excess in supply
* The gov’t will buy the excess supply in the market
* Ex: Agricultural Products: Rice, meats, crops, chicken, eggs * Farmers, Suppliers or sellers of agricultural Products will be protected 2. Price Ceiling/ Price Control/ Price freeze
* Maximum price
* Below the price Equilibrium
* Market Shortage
* When there is market shortage, gov’t will do the RATIONING. Or they will give supply or subsidy. * Ex: Basic commodities/ goods: Energy sources, petroleum products. * Low income families will be protected
Categories:| PERFECT COMPETITION| MONOPOLY| OLIGOPOLY| MONOPOLISTIC COMPETITION| *no of sellers| Many, several| Single, one| Few| Several, many| *influence in price| Price taker| Price maker| Price wars/ Price collision| Price taker| *products sold in the market| Homogenous, identical| Unique, no close substitute| Standardized| Differentiated or product differentiation| *use of advertisement| NO NEED| For Public awareness| YES, it is a need| Extensive use of Advertisements| *Entry & Exit in the market| Freedom/ very easy(does not need a lot of capital)| Very difficult/blocked(requires huge capital)| Very difficult/blocked(requires huge capital)| Relatively easy| *Monopoly is exact opposite of Perfect competition.
*Monopolistic competition is a combination of perfect competition and monopoly. PERFECT COMPETITION| MONOPOLY| OLIGOPOLY| MONOPOLISTIC COMPETITION| Products: agricultural productsIndustry: Rice industry, livestock, poultry| Products: Electricity, H2O, railwaysIndustry: Meralco, Napocor, PLDT, Nawasa, PNR, Sfelapco| Products: Gas stations, soft drinks, beverages, phone, appliances| Products: Bags, watch, dress, clothing, shoes, candy|
*Provides the needs of the nation
*We have a lot of choices
*High Price in monopoly
*Oligopoly has CARTEL – An organization in oligopoly
*Pollution, traffic, destruction of environment, crimes, prostitution Macroeconomics: deals with the behavior and activities of the entire economy Entire – whole, total, aggregate
Issues and problems tackled: