2. PRODUCER’S SURPLUS
This is the quantity which is actually made available to the non-producing
population of the country.
From the marketing point of view, this surplus is more important than the
total production of commodities.
An increase in production must be accompanied by an increase in the
marketable surplus for the economic development of the country.
3. Importance of Producer’s Surplus
Framing Sound Price Policies
Developing Proper Procurement and Purchase Strategies
Checking Undue Price Fluctuations
Export/Import policies
Development of Transport and Storage Systems
4. Relationship between Marketed surplus and
Marketable surplus
The marketed surplus is more than the marketable surplus
Marketed surplus > Marketable surplus
The marketed surplus is more than the marketable surplus when the farmer
retains a smaller quantity of crop than his actual family and farm requirements.
The marketed surplus is less than the marketable surplus
Marketed surplus < Marketable surplus
This situation holds good under a) large farmers generally sell less than the
marketable surplus because of their better retention capacity.
The marketed surplus may be equal to the marketable surplus
Marketed surplus = Marketable surplus
The marketed surplus may be equal to the marketable surplus when the farmer
neither retains more nor less than his requirement.
5. Types of Producer's Surplus
Marketable Surplus
The marketable surplus is that quantity of the produce which can be made
available to the non-farm population of the country.
Where
MS = Marketable surplus
P = Total production, and
C = Total requirements (family consumption, farm needs, payment to labour,
artisans, landlord and payments for social and religious work).
Marketed Surplus
Marketed surplus is that quantity of the produce which the producer-farmer
actually sells in the market, irrespective of his requirements for family
consumption, farm needs and other payments.
6. Relationship between prices and marketable surplus
Inverse relationship
This implies that the farmers' consumption is a residual, and that the
marketed surplus is inversely proportional to the price level. This behaviour
assumes that farmers have inelastic cash requirements.
Positive relationship
This relationship is based on the assumption that farmers are price
conscious.
7. Selling Behaviour of Farmers
It is determined by the following factors
Financial condition of the farmer
Nature of commodity to be marketed
Marketable surplus
Binding of farmer to particular middleman.
Development of marketing institutions.
Transport and infrastructure facilities availability.
Market information
Government policies
Weather conditions at the time of harvest
Packing materials and destination of markets.
8. Factors Affecting Marketable Surplus
Size of Holding
Production
Price of the Commodity
Size of Family
Requirement of Seed and Feed
Nature of Commodity
Consumption Habits
M = f(x1, x2, x3, x4)
9. Market Structure
The term structure refers to something that has organization and
dimension – shape, size and design; and which is evolved for the purpose
of performing a function.
Market structure refers to those organizational characteristics of a market
which influence the nature of competition and pricing, and affect the
conduct of business firms
Market structure refers to those characteristics of the market which affect
the traders' behaviour and their performances.
10. Features of Market Structure
The number of firms
The market share of the largest firms
The nature of costs
The degree to which the industry is vertically integrated
The extent of product differentiation
Entry barriers
The degree of standardization of product
Pricing
11. Components of market
Concentration of Market Power
Degree of Product Differentiation
Conditions for entry of Firms in the Market
Flow of Market Information
Degree of Integration
14. Characteristics of Monopoly
Monopolies can maintain super-normal profits in the long run. As with
all firms, profits are maximized when MC = MR.
With no close substitutes, the monopolist can derive super-normal
profits, area PABC.
A monopolist with no substitutes would be able to derive the greatest
monopoly power.
18. Market Structure Dynamics
Market dynamics are pricing signals that are created as a result of
changing supply and demand levels in a given market.
Market dynamics is a fundamental concept in supply, demand and
pricing economic models
19. Market Conduct
Market conduct refers to the price and other market policies pursued by sellers, in
terms both of their aims and of the way in which they coordinate their decisions and
make them mutually compatible.
20. Conduct and market structure
Market
structure
Conduct of
Firms
Performance
The conduct of firms in a market
can affect market structure – e.g.
merger and takeover activity
21. Market Performance
Performance refers to the economic outcomes that result from the market
structure and the firms’ conduct. To evaluate an industry’s performance,
economists consider
allocation efficiency;
production efficiency;
equity; and
technological advancement.
22. Performance and changing markets
Market
structure
Conduct of
Firms
Performance
The actual performance of firms in the market affects market structure –
e.g. rising dominance of best performing businesses – examples:
pharmaceuticals, food retailing
23. For satisfaction market performance, the market
structure, should keep pace with the following changes
Production Pattern
Demand Pattern
Cost and Pattern of marketing functions
Technological change in industry