economics for managers - session 03

8/3/2019 Economics For Managers - Session 03

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PSG INSTITUTE OF MANAGEMENT

MBA 2011-13 BATCH - I TRIMESTER

SESSION I II- FOR BATCH C AND D

ECONOMICS FOR MANAGERS


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Concept of Market

MARKET is a place or a situation wherepotential buyers and potential sellers of agood or a service come together for the

purpose of exchange.

Egsthe Vadavalli Sunday vegetable market,Uzhavar Sandhai, Pushkar Camel market,the Coonoor Tea market, the Mumbai Bullionmarket, village market in Bastar Tribal

district MPthe international Coffee,Rubber, Cocoa markets.the market throughInternet- ebay, Amazon, Olx, BookMyShow.

22nd Aug 2011

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EFM Faculty P.Uday Shankar


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22nd Aug 2011EFM Faculty P.Uday Shankar 3


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Market Structures

22nd Aug 2011EFM Faculty P.Uday Shankar

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Perfect Competition

Monopoly

Monopolistic CompetitionOligopoly


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Market Structures


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Perfect Competition Market Structure: It is atheoretical market structure in which nosupplier has an advantage over another. (BE-E)

Perfect Competition Market Structure: Inthis structure a large number of relativelysmall firms sell an undifferentiated product

in a market with no barriers to the entry ofnew firms.


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Perfect Competition Market Structure


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Characteristics of a Perfect Competition:

There are a large number of buyers and sellers in the market.

Managers of the firms are price takers as they would beunable to influence the market price individually.

Producers and consumers act rationally and have the sameinformation.

The product is homogeneous.

There is free entry and exit of firms in the market.

Profits of firms in the market will diminish as and when new

firms enter the market. Egs markets for agricultural goods and commodities traded

on national and international exchanges match with PerfectCompetition market Structure.


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Monopoly Market Structure


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Monopoly Market Structure is one in which asingle firm, protected by some kind of barrierto entry, produces a product for which noclose substitutes are available. (Thomas and

Maurice) Monopoly Market Structure is one in which

there is only one firm as the sole producer ofa good or service which has no closely

competing substitutes. (BE-E)EgLIC of India was a monoploy till private

companies came into India


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Monopolistic Competition MarketStructure


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Monopolistic Competition Market Structureis one in which a large number of firms thatare small, relative to the total size of the

market, produce differentiated productswithout the protection of barriers to entry.(Thomas & Maurice)

A typical example is of the tooth paste market.The many brands and kinds of toothpastesare close but not perfect substitutes.


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Monopoly on Populism !!


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Oligopoly Market Structure


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Oligopoly Market Structure is one in whichjust a few firms produce most or all of themarket output , so that any one firms pricingpolicy will have a significant effect on thesales of other firms in the market. (Thomas &Maurice)

Oligopoly is a market structure where a few

large suppliers dominate. (BE-E)Eg.The oil cartel is a typical eg of oligopoly.


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The public world over held at ransom by oil cartel


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DEMAND


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Demandfor a good is the quantity of thatgood which potential purchasers would buy,if the price of the good were at a certain

level. ( BE-E)Quantity Demandedis that amount of

a good or a service that consumers in amarket are willing and able to purchaseduring a given period of time. (Thomas &

Maurice)


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Demand Functions


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GENERALISED DEMAND FUNCTION:

This function shows how quantity demandedis related to product price and FIVE other

factors that affect demand. ORDINARY DEMAND FUNCTION:

This function shows the relationshipbetween quantity demanded and the price of

the product when all other variables affectingdemand are held constant at specific values.

( Ceteris paribus conditionwhen all other variables affectingdemand are held constant)


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GENERALISED DEMAND FUNCTION

The six principle variables that influence thequantity demanded of a good or a service are:

1. Price of the Good or the Service

2. Incomes of Consumers3. Prices of Related Goods and Services

4. Tastes or Preference Patterns of Consumers

5. Expected Price of the Product in FuturePeriods

6. Number of Consumers in the Market


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Generalised Demand Function Formula

Qd = f(P,M,PR, T,Pe,N)Where f means is a function of or

depends onQd= Quantity demanded of the good or the serviceP= price of the good or the service

M= consumers income (generally per capita)

PR= price of related goods and services

T= taste patterns of consumersPe= expected price of the good in future market

N= number of consumers in the market


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Categories of Goods on the basis of Demand

Ceteris paribus .change in income

Normal Good:A good or service for whichan increase in income causes consumers to demand

more of the good or service.Inferior Good:A good or service for which

a decrease in income causes consumers to demandless of the good or service.


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Categories of Goods on the basis of Demand

Ceteris paribus .price of related goods

Substitute products: Goods are substitutes ifone good is used in the place of the other. If two goods aresubstitutes , the increase in the price of one will increase

the demand for the other good. Eg.tea andcoffeechicken and meat. Pepsi and coke

Complement products: Goods are complementswhen used in conjunction with each other. If two goods are

complements , the increase in the price of one will decreasethe demand for the other good. Egs cups and saucers, breadand butter,


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Thanks


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economics for managers - session 03

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