Market and Equilibrium

LESSON 3.1 Market- place where sellers and buyer, suppliers

ECONOMICS and demanders, interact.
APPLICATION OF SUPPLY AND DEMAND Equilibrium- economic term for a place of rest for
Demand- ability of consumers to buy products at the market, a place where there is no pressure
certain prices over a certain period. on the part of the buyers or sellers to move.
Law of Demand- there is a relationship between Market Structures
the price of a good and the amount of it that  situation of the market in 1776 was that
people are willing and able to buy. factories were small and most businesses
 price is the cause and quantity is the were competitive.
effect.  Late 1800s competition was weakening and
 the relationship between price and combined a lot of small businesses into
quantity is inverse. large ones. As industries developed,
 when the price goes up, the quantity markets changed.
demanded goes down. Industry- all of the producers collectively.
 when the price goes down, the quantity  economists classify markets according to
demanded goes up. conditions that prevail in them. Thus, market
Factors Affecting Demand structures were used to describe the
 the number of consumers - more conditions of the industries.
customer, more demand. What is MARKET STRUCTURE,
 the income of customers - as income COMPETITION, and MARKET?
rises, people generally buy more of a Market Structures- refers to the competitive
good. environment in which buyers and sellers operate.
 expected income changes - if people Competition- rivalry among various sellers in the
expect their incomes to rise tomorrow, market.
they tend to buy more today. Market- situation of diffused, impersonal
 the prices of related goods - if the price competition among sellers who compete to sell
of substitute drops, people buy less of their goods and among buyers who use their
the original good. purchasing power to acquire the available goods
 people’s taste - consumers’ taste or in the market.
preferences affect demand FACTORS THAT AFFECT MARKET
Supply- willingness and ability of a producer to COMPETITION
make goods and services available at a variety of There are varying degrees of competition in the
costs. market. And they are dependent on the factors
Opportunity Cost- cost of giving up one the below.
opportunity to produce something else and using  Number and size of buyers and sellers
resources (inputs) as well.  Similarity or type of product bought and sold
 represent the benefits an individual,  Degree of mobility of resources
investor or business misses out on when  Entry and exit of firms and input owners
choosing one alternative over another  Degree of knowledge of economic agents
The law of Supply- there is a relationship regarding prices, costs, demand, and supply
between the price of a good and the amount that conditions
people are willing to spend and able to produce MARKET STRUCTURE
it. The nature and degree of competition among
 direct positive relationship. firms operating in the same industry. Markets are
 as prices increase, quantity supplied classified according to certain structural
increases. characteristics and economics have names for
 when the price falls, quantity supplied these different market structures
falls.
Factors Affecting Supply
 technology - if technology improves,
supply will increase.
 input costs - if input costs fall, supply will
increase. SIGNIFICANT OF THE MARKET STRUCTURE
 price expectations - if producers expect ➢The type of market structure in which the
prices, they will increase supply. business operates will determine the amount of
 time - time affects the supply. market power or control the business owner will
enjoy.
➢Greater market power means a greater ability ➢Very large sellers of a product dominate. Ex.
to control prices, differentiate the products one Car sellers
offers for sale, thus, leading to opportunities for ➢The action of each firm affects other firms.
more profits. ➢There is an interdependence among firms.
A. PURE/PERFECT COMPETITION Characteristics
 As the term suggests, perfect competition • Independent behavior
implies an ideal market situation for both • Pricing behavior – they follow prices of each
buyers and sellers. other
 Includes independent and well-informed • Profit maximization – it maximizes its revenues
buyers and sellers of the exactly the same D. PURE MONOPOLY
economic product.
➢There is only one seller of a particular product
Conditions
that has no close substitutes
• Large number of buyers and sellers exist
• Buyers and sellers deals in identical products ➢It exists when a single firm that sells in that
• Each buyer and seller acts independently market has no close substitutes.
• Buyers & sellers are reasonably well-informed ➢Its existence depends on how easy it is for
about the items for sale consumers to substitute the products for those of
• Buyers and sellers are free to enter into, other sellers.
conduct, or get out of business Types of monopoly
What are the CHARACTERISTICS of a perfectly  Natural monopoly – costs are minimized by
competitive market? having a single firm
 There are so many buyers and sellers that  Geographic monopoly – ex. A single gas
each has a negligible impact on market price. station in a highway because the area is too
 A homogeneous product is sold by sellers, small
which means the products are highly similar  Technological monopoly – when a firm
in such a way consumers will have no discovers a new manufacturing technique.
preference in buying from one seller over Patent
another.  Government Monopoly – A business which
PERFECT COMPETITION the government owns and operates
 there is perfect knowledge of economic Why does monopoly tend to have a bad image to
agents of market conditions such as present consumers?
and future prices, costs, and economic ➢It exists when a single firm that sells in that
opportunities. market has no close substitutes.
 market price and quantity of output are ➢Its existence depends on how easy it is for
determined exclusively by forces of demand consumers to substitute the products for those of
and supply. other sellers.
IMPERFECT COMPETITION  Consumers fear that monopolies tend to jack
 In other markets, one or more of the up prices of their goods since consumers
assumptions of perfect competition will not have no choice and cannot buy the good
be met; thus, the market becomes from any other seller.
imperfectly competitive.  Because of the absence of competition, there
B. MONOPOLISTIC COMPETITION is also the danger that consumers will suffer
➢Has all the conditions of perfect competition from poor quality of the good and poor
apart from the identical products service delivered by the monopolist.
➢It is a market wherein products are
differentiated, and entry and exit are easy.
➢It combines some characteristics of perfect
competition and monopoly
Conditions
• Product differentiation
• Non-price competition
• Profit maximization MARKET SKIMMING VS. MARKET
C. OLIGOPOLY PENETRATION
➢It is a market dominated by a small number of Market Skimming
strategically interacting firms.  Involves setting the price high in order to milk
➢Few sellers account for most of or total the segments with higher disposable
production since barriers to free entry make it incomes, with the price gradually being
difficult for new firms to enter.
 reduced over time to milk the next income Optional Feature Pricing
tiers, and so on. ✓ Since it is difficult to sell complete packages to
 Works particularly well for products that have consumers, it may be easier to sell them a basic
built up a lot of anticipation from the market stripped-down model first, then everything else
which do not have any clear substitutes at becoming optional add-ons.
the moment
Market Penetration LESSON 3.2
 Involves setting the price even lower CONTEMPORARY ECONOMIC ISSUES
than planned, if only to attract as much AFFECTING FILIPINO ENTREPRENEURS
of the market into trying it and hopefully ROLES OF SMALL BUSINESS IN THE
becoming loyal to it before increasing the ECONOMY
price  Serve as the backbone of the country’s
 works best for products that have the development
potential to be staples if only They  Provide job opportunities for a lot of Filipinos
manage to evoke market trial  Create job positions that cater to lower, but
Examples of Psychological Pricing not necessarily incompetent, levels of
Odd Number Pricing qualifications.
 Appropriate for employees who seek to gain
 ✓ Prices that end in non-rounded odd
work experience before moving on to other
numbers, such as 9.95 or 99.50, are said
jobs or professions.
to give the consumers the perception that
Create Employment
the prices are not as expensive as they
 More welcoming of fresh graduates or
actually are.
applicants who act the necessary work
 Free Pricing ✓ It is a way of bundling
experience.
product—especially complementary items  Provide employment opportunities, and thus
—and passing off one of the two (or more) training, to the younger workforce which
items as “free”. significantly contribute to the training of the
Discriminatory pricing country’s professional workforce.
Location Pricing FAMILY BUSINESS ENTERPRISE
✓ Many Metro Manila-based manufacturers have  Estimated at 65% of registered businesses
a Metro Manila price and a provincial rationale for are owned by families worldwide.
this kind of discrimination is that it may cost more  80% of businesses in the Philippines are run
to ship the products to provincial markets versus by families.
shipping within Metro Manila; although it isn’t  Employ a traditional method of management
always the case, which result in discrimination where family members occupy key positions
against provincial markets. price, which is a form and pass them to other family members upon
of discrimination thatis based on the physical retirement.
location of the buyers.  Among the most famous of Filipino Business
Image Pricing families are the Sy family, owners of SM
✓ Upscale products practically demand higher Investments and SM Prime Holdings; the
prices, otherwise their credibility may be ruined. Lopez family who own Lopez Holdings and
✓ Example: In the car industry, a high-end luxury ABS-CBN; the Gokongwei family of Universal
vehicle may have a sticker price that is Robina Corporation, Robinson’s and Cebu
tremendously high compared to its actual costs Pacific; and the Ayala family of Ayala
of production in order to preserve the upscale Corporation and Globe Telecome.
image of the product more than anything else.  Managing a family business can be a
Product Mix Pricing complicated task since there is a possibility
of professional
 and personal interest coming into conflict.
 These complications often include rivalries
among family members and the possibility of
family interests taking precedence over
sound business decisions.
 In 1970, Harvard Business School professors
Renato Taguiri and John Davis
conceptualized the three-cycle model of
Product Line Pricing
family business in their studies of family
If you have a line of products, chances are that
businesses.
many of these try to target distinct markets by
being placed at different price points.
 This model continues to be the central  Posses a warmer and more personal
organizing framework for understanding environment than non- family-owned one,
family business systems worldwide. tend to have a more family-oriented
The framework describes the business as corporate culture and values.
composed of three interdependent and  Each employee is treated like a family
overlapping groups which are family, business member and preserve the values defined
and ownership. since the beginning.
1. Family members are the most significant Disadvantages
members of the organization. Considered to  On the other hand, the limitations of family-
be the most dedicated and loyal members of owned business include the tendency of its
the organization. members to be overly familiar with each
2. Ownership Group incorporates investors and other.
owners who are not part of the family.  Tendency to abandon the formality of an
3. Business Group is composed of employees organizational structure which entails
who are neither owners nor family members. authority and responsibility.
 The overlap and interaction of these three  May give rise to the possibility of personal
groups leads to the formation of seven conflicts between family members that may
interest groups within the organization, eventually affect the organization.
each with their own goals and  Impersonal mindset may also affect
perspectives. decision-making and how management
 The success of the family business Deals with business concerns.
depends on how well these groups function  Nepotism is also rampant in family
and support each other. businesses.
 A diagram shows the different groups in a TWO FORMS OF BARRIERS TO ENTRY
family business as defined by the three- 1. Industry Barrier
cycle model by Taguiri and Davis. 2. Government Intervention
TYPES OF COMPETITION
 PURE COMPETITION
 MONOPOLY
 OLIGOPOLY
 MONOPOLISTIC COMPETITION
HOW TO KNOW YOUR CUSTOMERS
Demographics - gender, race, ethnicity Social -
1. External investors, who own part of the cultural barriers, marital status, religion, social
business but who do not work in it and are support
not members of the family. Economic - education, economic status, health
2. Non-family management and employees. insurance
3. Owners who work in the business but who Psychological - depression, fatalism
are not family members. WAYS OF SEGMENTING A MARKETING
4. Family members who own shares in the The table summarizes the basic ways of
business but who are not employees. segmenting a market.
5. Family members who are not actively Geographic
involved in the business either as employees  countries, nations, states, regions, and cities
or owners.  rural suburban, and urban
6. Family members who work in the business  climate or total population
but who do not own shares. Demographic
7. Inhabiting all three circles are owners who  age, gender, family size, education, income,
are also family members and who work in the family life cycle stage
business. Psychographic
CHARACTERISTICS OF FAMILY-OWNED  social class, values, personality, lifestyle
BUSINESSES Behavioral
Advantages  user status, usage rate, benefits sought,
 Owners consider the business as a legacy
loyalty, attitude
that will be passed on to the next generation. GEOGRAPHIC SEGMENTATION
 They consider the long term perspective with
The following are some examples of geographic
regard to the performance of the business. variables often used in segmentation.
 They aim to maintain the performance, to
 Region: by continent, country, state, or even
allow the next generation to reap and re-sow. neighborhood
 Size of metropolitan area: segmented mo sa government. part of income na binibigay
according to size of population sa government.
 Population density: often classified as urban, CHALLENGES FOR THE FILIPINO
suburban, or rural ENTREPRENEUR
 Climate: according to weather patterns Investment Challenges
common to certain geographic regions  government licensing and permits
SUPPLIERS (Wholesale distributors and  prohibitive rental rates and other clauses in
suppliers in Philippines) malls
 Shopee and Lazada  there are many who have no jobs
COMPETITORS CURRENT PROBLEMS OF FILIPINO
 same qualities and characteristics ENTREPRENEURS
 competitive advantage  inadequate access to technology
 collusion  financing capital
 marketing advice
 logistical problems in setting up and
maintaining their competitiveness in their
community
SUBSTITUTES TAX IN THE PHILIPPINE
 rice, bread, milk, coffee  value added tax (VAT)
ISSUES AFFECTING FILIPINO  salary and wages taxes
ENTERPRENEURS  amusement
Entrepreneurs Challenges  excise - mga products na hindi common, ex:
 covid-19 tobacco
INVESTMENT  import
 Economics - purchase of goods that are not  individual income
consumed today but are used in the future to  corporate income
create wealth  real estate
 Finance - monetary asset purchased with the  estate or inheritance
idea that the asset will provide income in the general idea: taxes affect the assessment of
future or appreciate and be sold at a higher investors in the company, kaya niya
price naapektuhan yung economy kasi kung less yung
Factors to Consider by Filipino Entrepreneurs mag iinvest sa company, hindi iikot yung
 Investment in Corporation- an asset or item company, therefore, it affects the economy.
that is purchased with the hope that it will one real world example of perfect combination -
generate income or appreciate in the future market/palengke pure monopoly - walang choice,
Why invest? walang alternative. like meralco and prime water
 replace worn out, or failing machinery,
equipment, or buildings
 purchase new machinery, equipment, or
buildings in order to increase productive
capacity
INVESTMENT- MAIN DETERMINANTS
 the expected return on investment
 business confidence
 changes in national income
 interest rates
 general expectations
 corporation tax
 the level of savings

from f2f: bakit tayo nag-iinvest? economy is

compose of multiple businesses and government
ROI interest rate is important because uutang ka
kapag walang pera, wherein yung inutang mo is
may payong (ayon yung interest and yung
percebtage non is interest rate) okay kapag
mababa yung patong sa interest corporate tax -
important because it maxmize the profit tax -
government money, portion of profit na binibigay