Market – the medium in which buyers and sellers interact. (Note: its meaning is not limited to a location or geographical area, it also focuses on people who are WILLING and ABLE to buy and/or sell goods and services. Two major players/actors in the market: Buyers & Sellers Market Equilibrium: when buyers and sellers agree at a certain price and quantity to transact
Price Equilibrium: price agreed by both buyers and sellers. Quantity Equilibrium: quantity agreed by both buyers and sellers. QD – Quantity Demanded QS – Quantity Supplied
When QD is less than (<) QS, Market Surplus occurs. Ex: QD = 10 QS = 12 QD<QS – It is above the Point of Equilibrium
– There is excess supply
*When Market Surplus occurs, the Sellers will be forced to lower the price to price equilibrium.
When QS is less than (<) QD, Market Shortage occurs. Ex: QS = 10 QD= 14 QS<QD – It is below the Point of Equilibrium
– There is excess demand
*When Market Shortage occurs, the Buyers are willing to pull up the price to price equilibrium.
How to get equilibrium price and quantity?
Ex: QD = 18- 2P QS = 2 + 6P
For Price: QD = QS For Equilibrium: 18- 2P = 2 + 6P 18 – 2(2) = 2 + 6(2) -2P – 6P = 2- 18 18-4 = 2 + 12 -8P = -16 14 =14 Pe = 2 pesos Qe = 14 units Government Intervention by Setting the Price
1. Price Floor/ Price Support
* Minimum price
* Above the price equilibrium
* Market Surplus/ excess in supply
* The gov’t will buy the excess supply in the market
* Ex: Agricultural Products: Rice, meats, crops, chicken, eggs * Farmers, Suppliers or sellers of agricultural Products will be protected 2. Price Ceiling/ Price Control/ Price freeze
* Maximum price
* Below the price Equilibrium
* Market Shortage
* When there is market shortage, gov’t will do the RATIONING. Or they will give supply or subsidy. * Ex: Basic commodities/ goods: Energy sources, petroleum products. * Low income families will be protected
Categories:| PERFECT COMPETITION| MONOPOLY| OLIGOPOLY| MONOPOLISTIC COMPETITION| *no of sellers| Many, several| Single, one| Few| Several, many| *influence in price| Price taker| Price maker| Price wars/ Price collision| Price taker| *products sold in the market| Homogenous, identical| Unique, no close substitute| Standardized| Differentiated or product differentiation| *use of advertisement| NO NEED| For Public awareness| YES, it is a need| Extensive use of Advertisements| *Entry & Exit in the market| Freedom/ very easy(does not need a lot of capital)| Very difficult/blocked(requires huge capital)| Very difficult/blocked(requires huge capital)| Relatively easy| *Monopoly is exact opposite of Perfect competition.
*Monopolistic competition is a combination of perfect competition and monopoly. PERFECT COMPETITION| MONOPOLY| OLIGOPOLY| MONOPOLISTIC COMPETITION| Products: agricultural productsIndustry: Rice industry, livestock, poultry| Products: Electricity, H2O, railwaysIndustry: Meralco, Napocor, PLDT, Nawasa, PNR, Sfelapco| Products: Gas stations, soft drinks, beverages, phone, appliances| Products: Bags, watch, dress, clothing, shoes, candy|
*Provides the needs of the nation
*We have a lot of choices
*High Price in monopoly
*Oligopoly has CARTEL – An organization in oligopoly
*Pollution, traffic, destruction of environment, crimes, prostitution Macroeconomics: deals with the behavior and activities of the entire economy Entire – whole, total, aggregate
Issues and problems tackled:
* National Output or National Y Inc.
* General Price Level
* Total Employment, Underemployment and Unemployment
* Foreign Trade
HOW DOES MACROECONOMICS WORK/OPERATE?
* Can be explained via circular flow of G.S.Y (Goods, Services and National Income) * p. 140 Diagram illustrates the relation between the two basic units (See the diagram 10.1)
TWO BASIC UNITS
Producing Unit| Consuming Unit|
* The circular flow starts from the Households who own the CELL. (Capital , Entrepreneurial activity, Land, Labor Resources) * The Cell will go to Factor Market then to the Firms.
* The firms will pay the HHs (because of the CELL the provided) which becomes an income to the HHs. * The firms will process the cells to produce Goods and Services. * The HHs Buy the G and S from the firms and their payments will be the income for Firms which is called SALES.
Page 141 (Diagram 10.2)
* Diagram illustrates the relation on the sectors of the economy. The HHs income will not all be used to buy Goods and Services but part of it will
be: (OUTFLOWS, LEAKAGES OR WITHDRAWALS) (INFLOWS OR INJECTIONS) SAVINGS FINANCIAL MARKET INVESTMENTS TAXES GOVERNMENT SECTOR GOV’T SPENDING IMPORTS FOREIGN MARKET EXPORTS OUTFLOWS of the circular which must be set off/compensated by its inflows or injections. MACROECONOMIC EQUILIBRIUM
b. S + T+M=I + G + X
S = avings T = axes M = Imports I = Investments G = Gov’t spending X = Exports c. Y=C+I+G+X
Y= National Income C = Consumption Demand I = Investment Demand G = Gov’t Spending X = Net exports
d. AS= AD
AS = Aggregate Supply D = Aggregate Demand
If the 4 indicators are not balance not balance/ equal the economy will experience a disturbance, imbalance, disequilibrium or problem. Macroeconomic Goals
* Full Employment – 96 % Employment and 4 % Unemployment * Rapid Economic Growth
* Price Stability
* External Balance
* Full utilization all all economic resources
* Labor should be abundant
* Land resources is under neutralized
Rapid Economic Growth:
* An upsurge in the National Output
* Improved Manpower skills
* Research is a prerequisite
* Does not mean constant prices but changes/fluctuations in the general price level must be at tolerable rates. * Absence of inflation and deflation.
External Balance: is attained when a country is able to earn enough from abroad to sustain its import needs. * Inflow of foreign exchange is equal to its outflow
Unemployment – no work
Underemployment – may work kaso part time or di match ung skills sa work Cause/Indications/Types
Cyclical: due to slow – down/ downswing of business activities Result: lay off of workers or retrenchment
Structural: due to mismatch of skills as required by industries Solution: K-12 and Tesda
Seasonal: 6 months lang trabho tapos wala na naman.
Frictional: After grad, maghihintay ng trabaho. Kaya nasasali sa unemployed. – Or umalis sa work tapos lumipat sa iba kaso di natanggap.
Formula for Unemployment = Total Unemployement/Total Labor force x 100
Effects of Unemployment
1. Decrease in National Output
2. Decline in aggregate Demand
3. Lost of skills
4. Higher Crime Rate
5. Low morale
6. Poor nutrition
Price Instability (presence of inflation and Deflation)
Inflation – continuing increae in the prices of G’s caused by.. * Higher demand of goods (Demand-pull inflation)
* High cost of inputs(cell) or production known as (Cost-push inflation) Effects: Low / Less Demand – Low Production – Unempoyment – Low income – Bakcruptcy(will lead to closure) – Low Investment Deflation: continuing decrease in the price
Effects: Less Supply – Low Investement – Low Production – Low income – Low Demand Who are affected by inflationary pressures?
a. Fixed Income Earners
Due to trade deficit: more imports than export
Also due to Trade Surplus: more exports but no demand
If Trade deficit occurse, the gov’t will resort to foreign borrowing.
NATIONAL OUTPUT/ INCOME/ PRODUCTION
The indicators to measure the country’s economic performance: GNP(Gawa ng pinoy) – the total market value of all final goods and services produced by nationals of country in a given period, usually one year. GDP(Gawa dito sa Pinas) – the total market value of all final goods and services produced within a country in a given period, usually one year. GNP| Similarities| GDP|
Basta gawa ng pinoy| Total market value of all final goods and services| Basta ginawa sa Pilipinas| Regardless of location| Produced within a given period of time| Regardless of nationality| Income of Filipinos pati OFW’s| | Pati income ng foreign firm na nasa Pilipinas| Approaches to measuring GNP:
a. Expenditure Approach (GDP)
* Personal Consumption
* Gross investment or Capital formation
* Net Exports
* Net factor income from abroad
b. Factor Income Approach (GNI)
* Personal Income
* Gov’t income
* Industrial (Agricultural, fisheries, Manufacturing, service, Forestry) Real vs. Nominal GNP
Nominal GNP – the nation’s output measured at current prices. Real GNP – is the nation’s output measured in constant prices. GNP as an indicator however has shortcomings. See page 162.