ECONOMICS Year 10

Chapter 8 Market Structures

What is the main aim of a firm??



 

When a household spend $$, it aim to get best value for money Firm Owns by shareholders. Their aim is to get bet value for money invested dividend. Therefore main aim is to make $$$ lost of $$$ MAXIMIZE PROFITS

Need TO COMPLETE with other firms to achieve their aim - maximize profits

HOW?


Increase customer base complete each other is price and quality increase sales cut price sales rev if demand is price elastic.
P % in P is < % in Qd

Qd

 

  

Advertising/ promotions expand market share - sales in market to boost revenue achieve brand or product superiority to enhance image to max profit

What is Competition??


Lead to greater efficiency. The more firm the better

Perfect Competition

Imperfect Competition

Monopoly

Perfect competition
    

Large # of small producers All producing identical products or HOMOGENEOUS product No barriers to entry and exit All firms have same info and technologies Consumers and producers are all PRICE TAKER. TAKER. If I increase price, no customer will buy and he will lower back the price. Example: Farmers

Imperfect competition:
 

Only a few big companies complete. Example: BOEING & AIRBUS in commercial airlines industry

Monopoly
 

Only one firm produces all output Example: Utility company

FEATURES of COMPETITION


  

In a competitive market, firms not free to set any price they wish If comp very fierce, prices will be forced downwards Consumers can have choice Firms may cut quality to reduce cost Forces firms to be efficient

WAYS OF COMPETITION


Price Competition
Reducing the price @ which a firm is willing to sell its products below other firms price  Undercut rivals


Non Price Competition



Differentiating features of goods or services e.g Promotion, free gifts, publicity. Advertising, after sales service

Is COMPETITION GOOD OR BAD FOR CONSUMER?

GOOD *Reduce Prices BAD *Advert and packaging wasteful as prices tend to pass on to consumers

*Increase Quality *Availability of different products

DO EXERCISE 1 pp 137

COMPETITIVE PRICING STRATEGIES

Use short term price strategies to expand sales and market share at the expense of the rivals such as:
Penetrating

pricing low price to establish new

product Expansion pricing as demand increase, firm increase output Price leadership All firms team to set same price.

Market skimming (Price creaming) high price for new products to get high profit. AS profit. COMPETITORS LOWER PRICE TO EXPAND MARKET DEMAND. Price wars Gains short lived. If long period some firms might close down giving only few firms to control market. Not good for consumer Destruction pricing destroy the competitors to push them out of the market.

MARKET STRUCTURE


Describe how a mkt is organized in terms of how much competition there is among producers. Competition make full use of resources produce outputs at the lowest cost to increase profit. Any restriction will cause a misallocation of resources. Govt always interfere in mkt to ensure sufficient competition

How to examine the amt of competition in a market:



The amt of control a firm or group has over output The amt of influence a firm or group has over market price The freedom new suppliers have to enter a market Barriers to entry that restrict new competition.