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  • If you don’t take it, someone will – lugi ka
  • If you don’t take it, someone will – lugi ka

Ec102 may 03 Ec102 may 03 Presentation Transcript

  • MARKET STRUCTURES
    Ec102 D - May 05, 2011
  • MARKET STRUCTURES
    Competitive
    Perfect – Dating
    Monopolistic
    Monopoly – Princess, Superman
    • Monopsony – Prom Date
    Oligopoly – Exam, Mean Girls
  • DETERMINANTS OF MARKET STRUCTURES
    Number of Firms
    Freedom of entry and exit
    Nature of the product – homogenous (identical), differentiated
    Control over supply/output
    Control over price
  • MARKETS
    Group of buyers and sellers
    Type of market structure influences how a firm behaves:
    Pricing
    Supply
    Barriers to Entry
    Efficiency
    Competition
  • PERFECTLY COMPETITIVE
    Many buyers and sellers
    Freedom of entry and exit
    Nature of the product – homogenous (identical)
    Control over supply/output – market
    Control over price – market
  • MANY BUYERS AND SELLERS
    Actions of any single buyer or seller has a negligible impact on the market price
    RESULT: Price takers
    Since each has negligible impact, each buyer and seller will just take/accept whatever the market price is
  • MANY BUYERS AND SELLERS
    Market for Starapples
    Ave price is P30 per kg
    If one seller sets its price at P40, buyers will not buy from that seller
    If s/he sets price at P20, other seller will intervene (kill her, kidding)
    No choice but to take P30 price
  • FREEDOM OF ENTRY AND EXIT
    If someone wants to start a firm, go
    If someone wants to leave, fine
    Because it is free, as long as it is profitable, many sellers will enter, many buyers will buy
    Results to negligible impact of each buyer or seller
  • HOMOGENOUS PRODUCTS
    Products are largely the same
    Since there are many firms with the same product and same price, buyers can easily transfer
    Since there are many buyers who want the same product, firms can ignore those who won’t take their price
  • OUTPUT/PRICE
    Determined by market forces of supply and demand
    Market demand and market supply in equilibrium
    Profit Max: P=AR=MR
    AR=TR/Q
  • OUTPUT/PRICE
    P=AR=MR
    AR=TR/Q
    If Q increases  TR = PQ
    OUTPUT effect – More Q, TR increases
    NO PRICE effect since they are price takers
  • PERFECTLY COMPETITIVE REVENUE
  • PERFECTLY COMPETITIVE
    Boys and girls on campus
    Same girls/boys
    If you don’t take it, someone will
    Mineral Water in SM Malls
    Movie Tickets in the same mall chain
    Classes with different profs
  • MONOPOLY
    Only 1 firm selling particular g/s
    Barriers to entry exists: firms cannot enter the market and compete
    Product has no close substitute
    Control of price: Monopolist
  • NO CLOSE SUBSTITUTES
    Demand tends to be inelastic
    If buyers do not like the price of the monopolist, they cannot buy it anywhere else
    Prime example: Meralco and electricity
  • BARRIERS TO ENTRY
    Resources: Key resource for prod’n owned by a single firm
    Gov’t regulation: gov’t gives a single firm exclusive right to produce g/s
    Prod’n process: Single firm can produce output at a lower cost than can a larger number of producers
  • BARRIERS TO ENTRY
    Resources: Key resource for prod’n owned by a single firm
    Example: Water
    Rarely happens
    Resources are owned by many people
  • BARRIERS TO ENTRY
    Gov’t regulation: gov’t gives a single firm exclusive right to produce g/s
    Sometimes political
    Patent and Copyright – lead to higher prices
    BUT encourages research and more productivity
  • MONOPOLY REVENUE
  • OUTPUT/PRICE
    MR < P
    As Q is increased, P must be decreased
    If Q increases  TR = PQ
    OUTPUT effect – More Q, TR increases
    PRICE effect – P falls, TR decreases
    Profit Max: MC=MR
  • MONOPOLY
    Princess
    Only producer of…princessness
    Buyers (suitors) have no other option
    Suar
    Can do everything
    No one can compete
    Meralco
  • MONOPOLISTIC COMPETITION
    Many buyers and sellers
    Freedom of entry and exit
    Differentiated Products – similar but not identical
    Example: Low Price Edition books
    Different Editions
    Control over supply/output – monopoly
  • MONOPOLISTIC COMPETITION
    Downward sloping demand curve
    Profit Max: MR=MC
    P>MC
    Same as monopoly
    P=AC
    Same as Perfectly Competitive
  • MONOPOLISTIC COMPETITION
    Differences from Perfectly Competitive
    Excess Capacity – producing below capacity because if Q is increased, P has to be decreased
    Mark up over Marginal Cost – P>MC because firm has market power
  • MONOPOLISTIC COMPETITION
    Boys and girls on campus
    Not really perfectly competitive
    Similarity – same gender
    But not identical – each unique
    Each has a monopoly of his/her traits
    Classes with different profs
  • OLIGOPOLY
    Many buyers and FEW sellers
    High barriers in entry and exit
    Products may/not be differentiated
    Price setter
    Interdependence among firms
    Cooperation
    Self-interest
  • OLIGOPOLY
    Collusion – an agreement among firms in a market about quantities to produce or prices to change
    Kim and Gabe last Friday
    Cartel – group of firms acting in unison
    Acts as a monopoly
  • OLIGOPOLY
    Mean Girls – HIGH barrier to entry
    Exam – producers have the bargaining chip
    Oil giants – Petron, Caltex, Shell
    Cannot collude explicitly
    But notice that when one increases its price, the rest follow
  • ACTIVITY #1
    2 students same birthday
    Minus 2 in the Midterm Exam Grade
    Suspected of cheating
    If proven – 0 in the Midterm Exam Grade
  • ACTIVITY #1
    Options:
    If one confesses and the other doesn’t
    The one who confessed will not get any deduction
    The one who doesn’t will get 0
    If both confesses
    Both get only minus 5
  • THIS WEEK
    FRIDAY
    Quiz on Market Structures
    Price and Output Determination in Mon, MonCom, Oligopoly
    Market Failures
    PARTYIN PARTYIN YEAH
    FUN FUNFUN, LOOKIN’ FORWARD TO THE WEEKEND
  • DUE ON MONDAY
    Short paper on the film for Friday
    1 full page (until bottom)
    Refer to syllabus for formatting
    Outline for your video presentation
    Concept
    Basic flow
  • GROUP QUIZ
    AMPC and the blue book market
    Market for autoload/e-load
    Turon market in the Ateneo
    Grades in Ec102 D class
    Market of all Ec102 classes in the Ateneo