Trade and Markets Jean Lee C. Patindol, c2011
The Economy Jean Lee C. Patindol, c2011 taxes services taxes services Produce goods and services,  Receive payments Make p...
National Economic Goals <ul><li>Short-term </li></ul><ul><li>Full employment  – use all the resources available most effic...
Economic Systems <ul><li>As a result of scarcity, every society has to make basic choices: </li></ul><ul><ul><li>What to p...
Trade <ul><li>The  voluntary  exchange of goods and services </li></ul><ul><li>The decision to trade is made because the p...
Value  vs. Cost <ul><li>Usefulness  of something acquired or to be acquired </li></ul><ul><li>May or may not be reflected ...
Prices <ul><li>Provide information  – as a basis for evaluating the relative value and cost of a good </li></ul><ul><li>Ac...
How Are Prices Determined in the Market? <ul><li>Cost of Production Theory  – based on Labor Theory of Value:  the value o...
Markets <ul><li>Anywhere a product or service is bought or sold; the result of an  interaction between supply and demand <...
Market Considerations <ul><li>Location </li></ul><ul><li>Size of market geographically </li></ul><ul><li>Amount of competi...
Pure or Perfect Competition <ul><li>Large market </li></ul><ul><li>Identical or standardized products </li></ul><ul><li>In...
Pure or Perfect Monopoly <ul><li>Where a buyer or seller has total control over the market </li></ul><ul><li>Characteristi...
Imperfect Competition <ul><li>All types of market conditions between pure monopoly and pure competition based on non-price...
4 Types of Competitive Markets <ul><li>Near pure competitive market  – highly competitive where product differentiation is...
Jean Lee C. Patindol, c2011 Feature/Type Near Pure Competition Monopolistic Competition Oligopoly Monopoly Level of Compet...
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Trade and markets

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Trade and markets

  1. 1. Trade and Markets Jean Lee C. Patindol, c2011
  2. 2. The Economy Jean Lee C. Patindol, c2011 taxes services taxes services Produce goods and services, Receive payments Make payments, Receive goods and services Government Consumers Producers
  3. 3. National Economic Goals <ul><li>Short-term </li></ul><ul><li>Full employment – use all the resources available most efficiently </li></ul><ul><li>Long-term </li></ul><ul><li>Growth –increase availability of resources, increase in productivity of resources </li></ul><ul><li>Equitable distribution of income </li></ul><ul><li>Economic stability </li></ul><ul><li>Economic sovereignty </li></ul>Jean Lee C. Patindol, c2011
  4. 4. Economic Systems <ul><li>As a result of scarcity, every society has to make basic choices: </li></ul><ul><ul><li>What to produce? </li></ul></ul><ul><ul><li>How much to produce? </li></ul></ul><ul><ul><li>How (includes when, where) to produce? </li></ul></ul><ul><ul><li>For whom to produce? </li></ul></ul><ul><li>A more fundamental choice: Who will make these choices? What economic systems will result out of this choice? </li></ul><ul><ul><li>Tradition : choices are dictated by past experience </li></ul></ul><ul><ul><li>Command : choices dictated by a central authority </li></ul></ul><ul><ul><li>Market : choices are determined by producers and consumers through the price system </li></ul></ul>Jean Lee C. Patindol, c2011
  5. 5. Trade <ul><li>The voluntary exchange of goods and services </li></ul><ul><li>The decision to trade is made because the parties involved in the exchange expect to gain . When one or both the trading partners believe they can no longer gain from trading, the exchanges will stop. </li></ul><ul><li>When people buy something, they value it more than it costs them; when people sell something, they value it less than the payment they will receive. </li></ul>Jean Lee C. Patindol, c2011
  6. 6. Value vs. Cost <ul><li>Usefulness of something acquired or to be acquired </li></ul><ul><li>May or may not be reflected in the price of that something </li></ul><ul><li>What it takes to acquire something </li></ul><ul><li>Usually influences price-setting </li></ul><ul><li>Includes monetary (price-based) and non-monetary (usually non-price-based) costs/ transaction costs (e.g., time, attention, energy, relationships, goodwill, good name) </li></ul>Jean Lee C. Patindol, c2011
  7. 7. Prices <ul><li>Provide information – as a basis for evaluating the relative value and cost of a good </li></ul><ul><li>Act as incentives – encourages sellers to produce or not; and buyers to buy or not </li></ul><ul><li>Act as rationing mechanism – the good goes to those who can afford them </li></ul>Jean Lee C. Patindol, c2011
  8. 8. How Are Prices Determined in the Market? <ul><li>Cost of Production Theory – based on Labor Theory of Value: the value of a commodity in exchange (or price) depends entirely on the amount of labor expended in its production; add up all costs to produce something, then add desired profit margin ( Cost concept ) </li></ul><ul><li>Utility Theory : satisfaction or usefulness to the buyer or consumer is the determining factor for the price of a good ( Value concept ) </li></ul>Jean Lee C. Patindol, c2011
  9. 9. Markets <ul><li>Anywhere a product or service is bought or sold; the result of an interaction between supply and demand </li></ul><ul><li>A market economy attempts to answer the 4 fundamental economic questions/choices through the system of prices </li></ul><ul><li>Based on 2 behavioral assumptions about buyers and sellers: </li></ul><ul><ul><li>Exchange – the activities of buying and selling in the market; prices are established as a result of the interactions of buyers and sellers </li></ul></ul><ul><ul><li>Rationality – self-interest; the “natural” behavior of the producer trying to maximize profits by selling goods at the optimum prices and of the consumers trying to maximize utility by buying commodities at the best possible prices </li></ul></ul><ul><li>2 types: </li></ul><ul><ul><li>Organized/formal : where buyers and sellers know there is a certain product for sale at a particular price </li></ul></ul><ul><ul><li>Unorganized/informal : where no one is sure about what is for sale nor what the price is </li></ul></ul>Jean Lee C. Patindol, c2011
  10. 10. Market Considerations <ul><li>Location </li></ul><ul><li>Size of market geographically </li></ul><ul><li>Amount of competition </li></ul><ul><li>Kind of product offered for sale </li></ul><ul><li>Cost of providing the product or service </li></ul><ul><li>Advertising of product </li></ul><ul><li>Size of firm and ability to produce the product/ economies of scale </li></ul><ul><li>Supply and demand for the product </li></ul>Jean Lee C. Patindol, c2011
  11. 11. Pure or Perfect Competition <ul><li>Large market </li></ul><ul><li>Identical or standardized products </li></ul><ul><li>Independence of buyers and sellers – no control or influence over price </li></ul><ul><li>Reasonably informed buyers and sellers – non-price competition </li></ul><ul><li>Free access to the market – people can enter or leave at no cost or loss </li></ul>Jean Lee C. Patindol, c2011
  12. 12. Pure or Perfect Monopoly <ul><li>Where a buyer or seller has total control over the market </li></ul><ul><li>Characteristics: </li></ul><ul><ul><li>A single seller or a single buyer </li></ul></ul><ul><ul><li>No entry – barriers prevent entry into the market </li></ul></ul><ul><ul><li>No good/product substitutes </li></ul></ul><ul><ul><li>Control of market prices and market </li></ul></ul><ul><ul><li>No competition </li></ul></ul><ul><li>Types: </li></ul><ul><ul><li>Natural: competition is not desirable or technically possible (ex.: talent, national parks) </li></ul></ul><ul><ul><li>Geographical – monopoly because of location </li></ul></ul><ul><ul><li>Technological (ex.: patents, copyrights) </li></ul></ul><ul><ul><li>Government </li></ul></ul>Jean Lee C. Patindol, c2011
  13. 13. Imperfect Competition <ul><li>All types of market conditions between pure monopoly and pure competition based on non-price competition </li></ul><ul><li>Product competition: </li></ul><ul><ul><li>Real differences: quality, atmosphere, cleanliness, refunds with no questions, service, warranties, discounts, etc. </li></ul></ul><ul><ul><li>Fancy: promises, gimmicks, color, slogans, styles, etc. </li></ul></ul>Jean Lee C. Patindol, c2011
  14. 14. 4 Types of Competitive Markets <ul><li>Near pure competitive market – highly competitive where product differentiation is very difficult and most people in this market condition must accept the market price (ex.: farm produce) </li></ul><ul><li>Monopolistic competition – highly competitive market where many small firms compete over product differences rather than price, with smaller profit margins (ex: mall boutiques) </li></ul><ul><li>Oligopolistic competition – a market condition where weak and strongly shared monopolies compete mainly over product differences rather than price. Very few firms compete in this market and there is a degree of concentration of industries (ex.: cellphone companies) </li></ul><ul><li>Near pure monopoly – there is an absence of competition and there would be dominance in this market without government regulation of the industry (ex.: oil companies) </li></ul>Jean Lee C. Patindol, c2011
  15. 15. Jean Lee C. Patindol, c2011 Feature/Type Near Pure Competition Monopolistic Competition Oligopoly Monopoly Level of Competition Very high High Few firms None Product Differentiation Very difficult Small firms compete over product differences Yes Product monopoly Buyer/ Seller Power Buyer Buyer and Seller Seller Seller Price Competition Yes Somewhat X X Need for Advertising Maybe Yes Less Need X

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