Market ppt @ bec doms

391 views

Published on

Managerial economics ppt @ bec doms

Published in: Business, Technology
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
391
On SlideShare
0
From Embeds
0
Number of Embeds
2
Actions
Shares
0
Downloads
11
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide
  • 1
  • 2 Basis for managerial economics -- model of competitive markets combines demand with supply in Chapter 6 (Economic Efficiency), show that competitive markets provide desirable outcome benchmark for analyses of market power and imperfect markets Demand-supply framework is core of managerial economics --- can address business issues goods and services consumer as well as industrial products domestic and international markets.
  • 3 To understand market impact, must consider both demand and supply.
  • 4
  • 5
  • 6 Market where some buyers have market power different buyers pay different prices; buyers with market power get lower prices; not possible to construct a market demand curve. Similarly, where some sellers have market power
  • 7
  • 8
  • 9 Medical treatment: patients have less information than doctors not all doctors equally informed about current medical technology and regulations Market for medical treatment is less competitive. Similarly, market for legal advice is less competitive.
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28 This figure combines short-run with long-run analysis at market level
  • 29 This figure combines short-run with long-run analysis at market level
  • 30
  • 31
  • Market ppt @ bec doms

    1. 1. MARKET
    2. 2. COMPETITIVE MARKETS
    3. 3. TANKER SERVICE MARKET, 2005 <ul><li>Impact of </li></ul><ul><ul><li>Increasing oil prices </li></ul></ul><ul><ul><li>Increasing China imports </li></ul></ul><ul><ul><li>More stringent tanker standards </li></ul></ul>
    4. 4. PERFECTLY COMPETITIVE MARKET <ul><li>homogeneous (identical) product </li></ul><ul><li>many small buyers </li></ul><ul><li>many small sellers </li></ul><ul><li>price takers (No influence on price) </li></ul><ul><li>free entry and exit (No barriers) </li></ul><ul><li>Both buyers and sellers share equal (symmetric) information </li></ul>
    5. 5. DIFFERENTIATED OR HOMOGENEOUS <ul><li>In market where products are differentiated, competition is not as keen as that in a market where products are homogeneous. </li></ul><ul><li>Compare </li></ul><ul><ul><li>mineral water – differentiated </li></ul></ul><ul><ul><li>gold – pure commodity </li></ul></ul>
    6. 6. NO MARKET POWER <ul><li>Many small buyers </li></ul><ul><li>Many small sellers </li></ul><ul><li>Both buyers and sellers have no market powers. </li></ul><ul><li>Both buyers and sellers are price takers. </li></ul><ul><ul><li>Note: buyer/seller with market power can influence market conditions </li></ul></ul>
    7. 7. NO BARRIERS <ul><li>Free entry and exit </li></ul><ul><ul><li>No entry barriers to potential competitors </li></ul></ul><ul><ul><li>No exit barriers to existing sellers </li></ul></ul>
    8. 8. FREE ENTRY? <ul><li>Japanese Beer Market, pre- ’ 94: </li></ul><ul><li>Ministry of Finance </li></ul><ul><li>production licenses for minimum of 2 million liters a year </li></ul><ul><li>sales licenses limited to small family-owned stores </li></ul>
    9. 9. SYMMETRIC OR ASYMMETRIC INFORMATION <ul><li>Market with differences in information not as competitive as one where all buyers and sellers have equal information </li></ul><ul><li>Compare </li></ul><ul><ul><li>photocopying service </li></ul></ul><ul><ul><li>medical treatment </li></ul></ul><ul><ul><li>legal advice </li></ul></ul>
    10. 10. MARKET EQUILIBRIUM, I <ul><li>Price at which quantity demanded equals quantity supplied </li></ul><ul><li>when market out of equilibrium, market forces push price towards equilibrium </li></ul>
    11. 11. MARKET EQUILIBRIUM, II 0 20 22 8 10 11 supply demand a b c equilibrium excess supply Quantity (Million ton-miles a year) Price ($ per ton-mile)
    12. 12. MARKET EQUILIBRIUM, III <ul><li>excess supply = excess of quantity supplied over quantity demanded </li></ul><ul><li>triggers price decrease </li></ul><ul><li>excess demand = excess of qty demanded over qty supplied </li></ul><ul><li>triggers price increase </li></ul>
    13. 13. SUPPLY SHIFT, I <ul><li>supply shifts down (right) -> lower price, larger quantity </li></ul><ul><li>supply shifts up (left) -> higher price, smaller quantity </li></ul><ul><li>final equilibrium depends on elasticities of demand and supply </li></ul>
    14. 14. SUPPLY SHIFT, II 0 19.60 20 10 10.4 original supply new supply demand 60 cents 60 cents c e b d Quantity (Million ton-miles a year) Price ($ per ton-mile) a
    15. 15. PRICE ELASTICITIES OF DEMAND 0 10 19.40 20 original supply new supply demand 60 cents 60 cents c b 0 10 10.6 20 new supply original supply demand 60 cents 60 cents b c Extremely inelastic demand Extremely elastic demand Quantity (Million ton-miles a year) Quantity (Million ton-miles a year) Price ($ per ton-mile) Price ($ per ton-mile) e e
    16. 16. PRICE ELASTICITIES OF SUPPLY 0 20 10 demand a b original and new supply 0 10 11 19.40 20 60 cents 60 cents a b original supply new supply demand Price ($ per ton-mile) Price ($ per ton-mile) Quantity (Million ton-miles a year) Quantity (Million ton-miles a year) Extremely inelastic supply Extremely elastic supply
    17. 17. SUPPLY SHIFT: PRICE IMPACT <ul><li>price change no more than amount of the supply shift </li></ul><ul><li>price change </li></ul><ul><li>smaller if demand is more elastic than supply </li></ul><ul><li>larger if supply is more elastic than demand </li></ul>
    18. 18. PROMOTING RETAIL SALES 0 1.50 1 retail supply a Quantity (Million units a year) Price ($ per unit) after wholesale price cut retail demand b Q
    19. 19. DEMAND SHIFT, I <ul><li>demand shifts down (left) -> lower price, lower quantity </li></ul><ul><li>demand shifts up (right) -> higher price, larger quantity </li></ul><ul><li>final equilibrium depends on elasticities of demand and supply </li></ul>
    20. 20. DEMAND SHIFT, II 0 20 10 10.8 supply new demand original demand 1 million a f b c 1 million Quantity (Million ton-miles a year) Price ($ per ton-mile)
    21. 21. TANKER SERVICES, 2005 <ul><li>Increasing oil prices </li></ul><ul><ul><li>Higher costs for tanker services  supply curve up </li></ul></ul><ul><li>Increasing China imports </li></ul><ul><ul><li>Higher demand for tanker services </li></ul></ul><ul><li>More stringent tanker standards </li></ul><ul><ul><li>Non-complying tankers scrapped  supply curve shifted to left </li></ul></ul>
    22. 22. VALENTINE ’ S DAY <ul><li>Nearing Valentine ’ s Day, price of roses always rises much more than the price of greeting cards. Why? </li></ul>
    23. 23. CALCULATING EQUILIBRIUM, I <ul><li>How would 3% increase in income affect price and sales of gasoline? </li></ul><ul><li>demand </li></ul><ul><li>price elasticity -.23 </li></ul><ul><li>income elasticity 0.39 </li></ul><ul><li>supply </li></ul><ul><li>price elasticity 0.62 </li></ul>
    24. 24. CALCULATING EQUILIBRIUM, II <ul><li>% change in qty demanded = -0.23 %p + 0.39 x 3 </li></ul><ul><li>% change in qty supplied = 0.62 %p </li></ul><ul><li>equate and solve: %p = 1.38% </li></ul><ul><li>% change in qty = 0.87% </li></ul>
    25. 25. 0 20 22 100 105
    26. 26. 0 20 21 100
    27. 27. SHORT/LONG-RUN IMPACT <ul><li>If demand/supply shifts, </li></ul><ul><li>market price is more volatile in the short run than long run </li></ul><ul><li>greater change in market quantity over the long run than short run </li></ul>
    28. 28. DEMAND INCREASE
    29. 29. DEMAND REDUCTION
    30. 30. PRICING AND FREIGHT COST, I <ul><li>cost and freight </li></ul><ul><li>ex-works pricing </li></ul><ul><li>How does pricing policy affect sales? </li></ul>
    31. 31. PRICING AND FREIGHT COST, II 0 1.50 1 CF supply a Quantity (Million pounds a year) Price ($ per pound) ex-works supply CF demand ex-works demand b 25 cents 25 cents

    ×