Topic 1 markets bài giảng

Markets Definition of a specific market: A market includes all sellers who are in, or potentially in, competition with each other; who sell closely substitutable goods to a common gr

Markets Topic 1

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1 Definition of economics

"Economics is concerned with the

efficient use of LIMITED productive

resources for the purposes of attaining the maximum satisfaction of our (unlimited)

material wants." (Jackson, page 3)

What is the

basic economic problem?

Providing for people’s

wants and needs in a

world of scarcity

What is meant by

scarcity?

The condition in which wants are forever greater than the

available supply of time,

goods, and resources

(Scarcity should not be confused with

What does scarcity

force us to do?

It forces us to make choices

Basic Economic Questions

• How much to produce?

• For whom to produce?

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Choice and Opportunity Cost

 Choice involves sacrifice., i.e choosing

one thing means leaving the other things.

 Rational choice – choices involve weighing

up the benefit of an activity against its

opportunity cost.

 Opportunity cost refers to the cost of an

activity measured in terms of the best

alternative forgone

What are economic

What is labor?

The mental and physical capacity

of workers to produce goods and services

What is capital?

The physical plants,

machinery, and equipment used to produce other

goods

What is

entrepreneurship?

The creative ability of

individuals to seek profits by

combining resources to

produce innovative products.

What economics is all about?

 It is the study of how society chooses to

allocate its scarce resources to the

production of goods and services in order

to satisfy unlimited needs and wants.

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Economic Efficiency

Economic Efficiency

Productive Efficiency

Allocative Efficiency

To produce at the

least possible cost

To produce the most Desired products

Making stuff right Making the right stuff

Economics – an overview

 Macroeconomics deals with this problem at the

aggregate level It focuses on the economy as a whole – ie the “big picture”

 Microeconomics deals with the problem at the

level of individual units within the economy such

as consumers, firms etc

“In microeconomics we examine the tree, not the

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2 Markets

 A mechanism or arrangement that brings

buyers and sellers of a good or service in

contact with one another (Jackson p.55)

2 Markets

 Definition of a specific market:

A market includes all sellers who are in,

or potentially in, competition with each other; who sell closely substitutable

goods to a common group of buyers.

 Two main elements of this definition:

Demand substitutability

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2.1 Usefulness of Market Definition

 Market definition helps firms to know who its

competitors are, what they are doing and for

whose business they are competing

 This will help management to make informed

2.2 Elements of Demand substitutability

A market includes firms:

1) Selling products that are closely

substitutable in the consumers’ eyes -

The Product level

2) Selling products to a common group of

buyers in the same geographical area -

The Geographic dimension –

(international, national, state or local?)

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2.3 Elements of Supply substitutability

Definition of a market includes both:

 Current suppliers (or sellers)

Firms currently selling products that are

considered to be close substitutes for each other, and so part of the same market

 and Potential suppliers (or sellers)

Firms that have the ability to quickly and

easily move into supplying these products, if given the incentive

3 Characteristics of a market

that influence firms’ behaviour :

 Concentration

 Product differentiation

 Barriers to entry

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3 Characteristics of a market

3.1 Concentration refers to the number and

size distribution of firms in a market, and their market shares

 High concentration - a small number of

firms control a large market share

 Low concentration – a large number of

firms and no firms have any market power

3 Characteristics of a market

3.2 Product Differentiation

 Physical or subjective differences in

consumers’ minds between rival firms’

products

 A feature of a product that sets it apart from

other similar products

Examples of homogeneous (or standardised)

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3 Characteristics of a market

3.3 Barriers to entry – refers to how difficult

it is for a new firm to enter a market and compete with existing firms.

4 Basic Market structures

Characteristics Pure

Competition Monopolistic Competition Oligopoly Monopoly

Concentration Large no of

sellers Many sellers/ (low

concentration)

Few sellers/

(high concentration)

Barriers to

Entry

Low barriers Some barriers High barriers High barriers

or

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4.1 Basic Market structures

(Buyer’s side of market)

1. Pure competition : Many buyers; none

is able to influence prices

2. Monopolistic competition : Relatively

large number of buyers.

3. Oligopsony : Few buyers, who are

independent and able to influence prices and terms of exchange.

4. Monopsony : One buyer

4.2 Problems with Classifying

structure

 In practice, it is often difficult to fit a market into one category or another It’s a matter of

judgment No hard and fast rules

 Different aspects of a market may fit into

different categories

 Market structures are changing over time

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Efficient use of resources, social implications, equity (or fairness)

Basic Conditions

Market Structure

Market Conduct

Market Performance