Topic 1 markets bài giảng

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1
Markets
Topic 1
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Topic 1 - Contents
1. Basic economic concepts
2. Market Definitions
3. Characteristics of a market
4. Basic market structures
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1. Definition of economics
"Economics is concerned with the efficient use of
LIMITED productive resources for the purposes of
attaining the maximum satisfaction of our (unlimited)
material wants." (Jackson, page 3)
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What is the
basic economic problem?
Providing for people’s
wants and needs in a
world of scarcity
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What is meant by
scarcity?
The condition in which wants are
forever greater than the
available supply of time,
goods, and resources

(Scarcity should not be confused with
poverty)
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What does scarcity
force us to do?
It forces us to
make choices
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Basic Economic Questions

Limited resources Unlimited needs and wants

Scarcity
=> Choices must be made about:
•

What to produce?
•
How much to produce?
•
For whom to produce?
•
At what price to sell?

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Choice and Opportunity Cost

Choice involves sacrifice., i.e. choosing one thing means

leaving the other things.

Rational choice – choices involve weighing up the
benefit of an activity against its opportunity cost.

Opportunity cost refers to the cost of an activity
measured in terms of the best alternative forgone.
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What are economic
resources?
The basic categories of
inputs used to
produce goods and
services
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What are the four
categories of resources?

Land

Labor

Capital

Entrepreneurship
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What is a
land resource?
Any natural resource provided
by nature.


Land includes anything natural above
and below the ground such as forests,
gold, diamond, oil, rivers, lakes, seas,
air, the sun, the moon, etc.
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What is labor?
The mental and physical capacity
of workers to produce goods and
services
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What is capital?
The physical plants,
machinery, and equipment
used to produce other
goods
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What is
financial capital?
The money used to
purchase capital
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What is
entrepreneurship?
The creative ability of
individuals to seek profits by
combining resources to
produce innovative products.
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Land

Land
Labor
Labor
Capital
Capital
Entrepreneurship organizes
resources to produce goods
and services
Entrepreneurship organizes
resources to produce goods
and services
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What economics is all about?

It is the study of how society chooses to allocate its
scarce resources to the production of goods and
services in order to satisfy unlimited needs and wants.
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Economic Efficiency
Economic
Efficiency
Productive
Efficiency
Allocative
Efficiency
To produce at the
least possible cost
To produce the most

Desired products
Making stuff right Making the right stuff
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Economics – an overview

Macroeconomics deals with this problem at the
aggregate level. It focuses on the economy as a
whole – ie. the “big picture”

Microeconomics deals with the problem at the
level of individual units within the economy such
as consumers, firms etc.
“In microeconomics we examine the tree, not the
forest” (Jackson p.10)
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2. Markets

Broad Definition:

A mechanism or arrangement that brings
buyers and sellers of a good or service in
contact with one another (Jackson p.55)

Examples ??
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2. Markets


Definition of a specific market:
A market includes all sellers who are in,
or potentially in, competition with each
other; who sell closely substitutable
goods to a common group of buyers.

Two main elements of this definition:

Demand substitutability

Supply substitutability
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2.1 Usefulness of Market Definition

Market definition helps firms to know who its
competitors are, what they are doing and for
whose business they are competing.

This will help management to make informed
decisions about:

Product pricing

Any new product lines

Advertising strategy

Investment


Etc.
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2.2 Elements of Demand substitutability
A market includes firms:
1) Selling products that are closely substitutable in the
consumers’ eyes - The Product level
2) Selling products to a common group of buyers in the
same geographical area - The Geographic dimension
– (international, national, state or local?)
3) Operating on the same Functional level – ie.
manufacturing, wholesale or retail
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2.3 Elements of Supply substitutability
Definition of a market includes both:

Current suppliers (or sellers)

Firms currently selling products that are
considered to be close substitutes for each
other, and so part of the same market.

and Potential suppliers (or sellers)

Firms that have the ability to quickly and
easily move into supplying these products, if
given the incentive.
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3. Characteristics of a market

Three key characteristics of a market that influence
firms’ behaviour:

Concentration

Product differentiation

Barriers to entry