economic for business (part 2)

• Price-Taking Firms


  Must accept the ruling market price
• Price Making Firms


  Price of Product can be higher than market price
• Price Making Firms should not set a price above the market price for a homogeneous product, as they will experience a complete collapse in demand
• Price Making Firms


  • They possess certain characteristics or features that allow them a degree of latitude in price setting without the risk that their customers base will melt away
• Market Power


  The ability of a firm to influence the market price of a good or service
• Sources of Market Power

  • The absence or scarcity of rival firms
  • Customer preferences
  • Product availability
  • Product differentiation
• Market Structure


  A means of characterizing a market by reference to the level and intensity of competition that prevails between the firms in it
• Features of Market Structure


  • The Number of Firms
  • Types of Product
  • Barriers to Entry
  • Pricing Power
  • Mobility - Factors of Production
  • Customer Loyalty
• Perfect Competition


  • Any firm may leave the market if it chooses to do so and other firms are free to enter it
  • Factors of production enjoy perfect mobility
  • A perfectly competitive market is composed of a large number of independent profit-maximizing firms each of which is small in relation to the market
  • Produces a homogeneous product; that is, one with no identifiable brand
• Imperfect Competition


  • Any firm may leave the market if it chooses to do so and other firms are free to enter it, however they need to be able to differentiate the product to ensure they can remain competitive
  • Factors of production enjoy perfect mobility
  • A imperfectly competitive market is composed of a large number of independent profit-maximizing firms each of which is average in relation to the market
  • Produces a differentiated product; that is, one with identifiable brand or industry
• Oligopoly


  • Firm can leave the market if it chooses to do so and other firms are NOT free to enter it as they are protected by market share or high level of capital/investment that is needed
  • Factors of production does NOT enjoy perfect mobility
  • Few - with four to five firms dominating the market
  • Produces a differentiated product; that is, one with identifiable brand or industry
• Monopoly


  • Firm can leave the market if it chooses to do so and other firms are NOT free to enter it as they are protected by market share or government protections
  • Factors of production does NOT enjoy perfect mobility
  • One - only one firm dominates the market
  • Produces a differentiated product; that is, one with identifiable brand or industry
• Types of Monopoly


  • Pure Monopoly
  • Legal Monopoly
  • Natural Monopoly
• Pure Monopoly


  A market structure in which there is a sole supplier of a good or service that has no close substitutes and for which there are barriers to entry into the industry
• Legal Monopoly


  Arises in the UK when a firm enjoys a market share of 25 per cent or more
• Natural Monopoly


  Arises when a single firm is the most efficient structure for the production of a particular good or service
• Sources of Monopoly


  • Patents
  • Trademarks
  • Copyrights
  • Designs
• Monopsony


  Market power arising from the exclusivity that a firm possesses in a market as a seller can also result when the firm is an exclusive or dominant buyer
• Economics


  The study of how individuals, businesses, governments, and societies make choices about how to use scarce resources to satisfy their unlimited wants
• Microeconomics


  The branch of economics that studies the behaviour of individual economic agents, such as consumers and producers, and how they interact in individual markets
• Macroeconomics


  The branch of economics that studies the overall economy, including topics such as inflation, unemployment, economic growth, and the balance of payments
• Opportunity cost


  The value of the next-best alternative that must be given up to engage in an activity
• Circular flow of economic activity


  The continuous flow of money, goods and services, and factors of production between households and firms
• Macroeconomics is a branch of economics that studies how an overall economy—the market systems that operate on a large scale—behaves
• Macroeconomics studies economy-wide phenomena such as inflation, price levels, rate of economic growth, national income, gross domestic product (GDP), and changes in unemployment
• Macroeconomic policy


  The attempts of policymakers to influence the behavior of macroeconomic aggregates in order to improve the overall performance of the economy
• Macroeconomic policy instruments


  • Monetary policy instruments
  • Fiscal policy instruments
• Main objectives of a government


  • Stable and satisfactory rate of economic growth
  • High and stable level of employment
  • Low and stable rate of inflation
  • Balance of payments equilibrium in the medium term
• Economic welfare


  The country's overall economic performance, typically measured using GDP
• The greater the level of output produced and consumed in an economy the higher will be its living standards in relation to a given population
• Gross Domestic Product (GDP)


  The total value of goods and services produced in a country by the factors of production located in that country
• GDP functions as a comprehensive scorecard of a given country's economic health
• GDP is typically calculated on an annual basis, but it is sometimes calculated on a quarterly basis as well
• Circular flow of income


  The continuous flow of money, goods and services, and factors of production between households and firms, which can be depicted in two, three, or four sector models
• Injections into the circular flow of income


  • Private-sector investment expenditure (I)
  • Government expenditure (G)
  • Revenue from export sales (X)
• Withdrawals from the circular flow of income


  • Savings (S)
  • Taxes (T)
  • Purchases of imported goods and services (M)
• Economic growth


  An increase in the production of goods and services in an economy, which can be driven by increases in capital goods, labor force, technology, and human capital
• Economic growth can be observed in most economies and reflects changes in factors such as the form and use of technology in new capital equipment, refinements in the organisation of production, increase in the supply of labour, and increase in expertise of the labour
• Recession


  A decline in real GDP that lasts for at least two consecutive quarters of a year
• Unemployment


  Persons above a specified age not being in paid employment or self-employment but currently available for work during the reference period