~ Because of the Law’ of demand a demand curve is likely te be negatively sloped. ie. there is an inverse relationship between changes in price and changes in quantity demanded. — Tr dhe diagram on che left a rise im the price of evokies from Pa te Pe (1-91.90 CHF) has resulted in a fall in quantien demanded from Qi te Qa (130-¥ (10), This ts shown ly 4 movement along the demand curve from poinr © to yvome @ - The demand curve for cookies has been drown based Upon rhe assumption of ceteris paribus. Ie nothing ele that could alfect the demand ter cookies lexceegt for ele erice of cockier) has changed- _ Changes in demand 20/09/42 FL change in quantity demanded occurs when more om less of a product is demanded by consumers as 4 ceult of & change im the product's price, assuming ceteris parabus” “A change in demand eceurs due to a change wm the conditions of demond. Tlealy when something ele apart Brom a Change in the price of the product ttself changes, \eadiay co more of less of rhe product being demanded at every price.” A change in demand is showa by a shift of the whole demand curveFactors + Treome ~ Taferior goods ~ Noemal geods + Prices of other products ~ Subs ti tures ~ Complements “Change in income distribution " Ewected price changes in the future * Rbversising * Government pokey “ Clranges ia population ~ size ~ Structure "Changes in fashion Seaconsnoel i Su 2 42 Noa-price determinants of supply came a shift of rhe supply curve, bom te the lef or to the eight, depending on the situation. As always « ceteris paribus assumption is made The main non-price determinants char affeces the supply curve is the chonge in He cost of factors of production. 4 ec cost of factors o} produstio When there is aa inctease ia the cost of a factor of preduction rhis will increase the production casts. This iQ Quen means that less of « product will be supplied shilting the supely curve 40 the Aeft. High cose of production decreases quontity sapglied. Lew cost of production increases quoatity saphied. 1) Vice of alternative produc Prolacers can choose what co preduce. They oe drown to Wigher selling prices ts marimise profits. Th skateboards are selling Ger a higher price, thon vollerblades production will decrease as producers shift the use of thiv resources. This change in the price of a substitute product will lead fe a change in the quoarity supplied” of another. 3) he state of technology, Twprovements in xle state of technology in on industry or tiem wil lead to an increase In gnontion supplied. This wilh shile the supely curve to the right The opposite will shibt the supply curve to the lepe. U) Expectations Reducers make decisions on wher 40 sappy based on expecations of futuce prices. Tf suggliers expect the prices to Inerease im the Guture they may dedbeto sore product to sell at a later dare. TWis could decrease te ausation, Supplied of the product at a specific date. TP rhe opposive happens. producers will try te gee id of products which wenld tacrease the anon Hi supplied5] Coversmant Tatervention Goverments con impose indirect taves on goods and gerunes Which are added to the price of the product. Therefore the supply curve shifts to the Lett and less products are produced. Governments con also mpese cubsidies on Birmt, which is © payment to support « firm oe arganisation by the government. These subsidies decrease rhe production cose therefore the seoply cul ve shales bo the right.Sxaply. 21/09/12 “The supply ef = produce tefers co. the amount of a. produce vhich prodacers er sellers are pregaced te offer tor sale ab a cange of prices over a period of time.” Profi ie the sale price minus che production /cast price. “ Tw general theres a positive relationship berween clanger in rhe selling price of a produe and the quantity supplied to the marker. Lie, {The Lane of Supply") “ fp —o Pas SP yas A supely schedule simply shows Ye quamntig supplied / the quantity suppliers are willing and able to supely at dillerent evices. S. 2 10 Q 20 6 30 8 4d Suegly carve for produce will Cin general) be positively sloped. Price of conkies tcrte) Quansivy supevied of cookiesTa the previous Vagram « rise im selling price from Peto Pe has led to an increase ta the quanhity sapplie? ol cookies fram Gy to Qe. ie, there bas been a movement along the supply carve from poiar O vo point @ A sueply cave iF dvawn based upen the assuaption of ceteris paribus, Le ir is ascamed that anything else whreh com adfecy rhe supply of © produce apart trom ies grtee has remained constant. Wie Th is assumed thar, Ina market system, the mata motivator ter suppliers Us peabit, Prokis can be defined Sy different wane, Ae es most Vvasic debiaircon pmbir equaly Sy urve posite 1 ‘ sole price vmiaus cor price. (profir = torel revenue — total voir), Economists Use the symbol -e bo represent orotic. Th ic ir assumed chat the cosr price (ie the costs Incurred by suppliers in order to produce and sell the produce 2.4 aw matenial costs labour costs, capital Costs...) does not change, then the erofir eer uait wilh be Wigher at a Wigher selling price. Existing sapelters “vill ( wish bo mereose heir quontitg supplied and new supplier: will enter the market attracted by the kigher potential prokirs A change in supply occurs when more or less vf a eroduct (5 sugplied to the macket at every price and is shown by a shift of che supply curvePrice of Price of cookies cookies CCH) > (CHF) 9, Quanttiy sugplied , jon - ori oni | S, change in cost of preduction “raw material cost “labour costs ~ cogital costs Dichange in peices of alternative products = (changes ia He price of 9 produce will lead to the sugply ef by-products.) 3} state af sechantagy “better teda. leads to an iaccease in sapply egea 5) geverament Intervention Buantieg, suppl ed A210 C42 «change ia - taxes (income and sales) (Licect ve indirect) ~ SulysidiesMarket Equilibrium od(tolt2 Tn general demand curves are negatively sloped Tr general supply curves are positavely sloped There will be one price where the quantiny demanded sha product equals the quantity supplied of che product Ths ts known ac the equilibrium price or) market clearing price Price of clue bars Pe Quantity of choc. bors At peice Pe the aguante supplied te the market ir Ge and the quantiry demanded by consumers is Qe, fr price Pe, trerebore, the quantity demanded equal, He quentivy supped and che morker is th equilvbetum. Ta a free market (ne govecnment inervention) markets will always meve te on cquilibelum position , where quenting demanded equals quenniny supplied ar a portienlar price, \ Prive initially above the equililbriuen O4IO (M2 Pree of... qqe ts LU Quan surplus / excess supply,0. 4ov Ar Pr quantity demanded lgd) is less than quantiny supplied (4s). Therefore there ts a surplus of gd to qs. Because ol the surplus prices will be forced down. fis price decrease: qt will increase and qs will decrease. These trends will Continue until equilibrium is reached. Eventually market will be in equilibrium at Pe qe. Price initially below the equilibrium ua Quoatiey of... Ak peice Py quantity demanded is greater than the quantity supplied ( qd> qs). Therefore there is a shortage oc excess demand of 4s to ad. Because a} the shortage prices will be forced up by producers. fs grices increase qb will decrease and qs will increase These trends will continue untll equilibrium is reached. Eventually market wik be ta equilibrium ab Pe qe-Changes in Mackee Conditions 284407142 "Al change in market Contitions fs when ony of the doctors which cesult in a shift of either the demand curve or the supply curve occur! For demand this change of factor could be because of a change in the erie of a canplementacy goods. For supply che main factor that could affect che supply curve would be a chenge in the cork of production. “A chonge in marker conditions i likely 46 cause on. initial surplus or shortage but eventually marker forces will cause the price to change until ene : surplus of shortage is eradicated and a new equilibrium position is reached, where quantity demanded again equals quomeite, supplied at the new equililorium price.” ® Chreenges in Demand a Increase in Demond Price ol, ‘, De Paes ve Quaneing of Due so 4 change in Ractors affecting demand there has been an increare W demand. Thir is shows by « shilt ko the cight of the demond curve from Di to de Ak che original price Pr, there will now be < shortage ol rhe produce of 44 to de. As a result the price wil rue unl a new equilibrium is reached oF a Wigher peice Pa and a higher quantity qe.OS/40/42 WY decrease in Demand Price of. Da Quowtitg of + Wemand (D curve —* leby - 04 to De) + @® original Price (Pr) there is now a suanplus d * eventually price will fall (Py Pe) and empilibrinm quanriny wil Gall Caa to ae) @ Changes ia Sacely a) Tnceease in Supply Se - be Quoatiey of... oar *Trerease in Sagely (5 curve co eight - 51 to Sa) “@P now surplus * eventually new equ. will be reached at a lower erice (Re ge Pal but o higher quantity lqs to 42)“Decrease in Sustly (S curve go lebe, $4 40 Se) "@RM there is now a shortage eventually new equilibrcum will be reached at a Wigher price (Pa to Pe) bur a lower aranniey Car vo 4+)Linear Demand and Supply Functions 63/40, inear Demand Functions (Pa 25-26) Qd_s a-bP wheres Qk = quantity demanded a = the amount of the produce which weull be demended it the price was O ue it shows the position of the demand curve. (higher the value for a the further to the sight ir the D curve) P= price /umit of rhe product b= sets the slope of the D curve, ie. tt gives an indicascon of the price elasticity of demand (RED) for che product Qs = a-bP die. ceflecting the Pact that there is an inverse ve lationship Lerween changes in P and changes in Qd, Linear Suoply Functions (Py 30-32) Qs =e + dP where 3 Qs = quomtity supelied C= the amount of the product which would be supplied IL the price was zero jie. th shows the parition of the S curve [higher the value for ¢, the tuwther ko the eight is the S$ curve) P= orice / unit of the product d= sets the slope of the $ curve, ie, Ik gives an tadication of the elageicitey of supply LE of S) dor the produc The equation stares that Qszcar db te. reflecting che fact har there is a poritive relationship between changes in P and chauges ta QseS eo Action MMAO/41 2 2a Qd= 100~4P "Te Cind the price intercept for a demand function (Curve, set Qi=O and solve Por P. £3. Qd > 100 - OP O = 400 - UP 4P = 400 P = 100/74 Po: 25 Te find the quonticy intercept, set P-O and solve for Qd eg Qd +100 -62 Qi =400-0 Qd = 100 + Doin the price intercept with tle quewrity intercept te create a végatively sloping Demadd useve. Tueccegts tor Suegly Function ey Qs = OUP *To Rind she price intercept Por a suagly Runction /eurve, set Qsr-O and sslue Por P 29 Qs = “FOr2P © +-80+2P “Z2P * ~go Pe -go/-2 P= 40 + To find quantity intercept, se4 Ps O ond soe for Qs ey Qs = ~ 80 t2P Q.7- 80 “Toined tonerher t+ create a evirively sloped supply curve,Qa = a-bP Qs = ¢ +aP B Foe equillbium; Qi = @s a-bP = cr aP ond @ eq, QI-Qs =O He to bind oquilibrs igs Let demand be given ly the function Qi > 200 ~4P Ler suerly “eon « a Qs = de (no ¢ vale means the sugply curve therts from origin) | Stee 4) ethe ok AR equilibrium conditions Qi = Qs enere for too-4P = GP 200% gP fs 28 (ET = equilibrium ercce) Stept) Substioe P* ince either che demand function on the supely function to find equillerium quactty Dikuauion _Q* = Loo -4P (Qh = too -4(25) +2007 +400 Qt = 400 S ation Q* ~ aP Q* = les) 2400 Seep?) Therefore, equilirium erice & CXF 25 and equilbrium Awantity is 8 LOO wails.Elastic 15210142 The concept of elasticity in Econsmict refers to the responsiveness of either QO /demand in somerhing else. ~ For dillecent measures of Clastitcey will be comidered. @ Price Elosticiny of Demond oe = QS te a change PED XED © Cross price Llasrticity of Demond YED © Tacome Elasticity of Demons 2) Elanticiey of supely A) Claseiciey of Demand Claseicitey 6! 3 Elaricity of Demand measures the responsiveness of QD er demand te: a change ia eithers d the price of the product tesell - Price Ebsticity of Demand (PED Ya change iw te price 0) onother greduct- Cross-price Elervicity of D Ja change im Consumers’ tacomes -Trcome Slastictty of Pemond cue sticttsy of Demand Deb: PED measures the cesponsivencss of the Quantity Demanded dh & produce +o a change in its erice. (oun-price elasticity ol demani) PED= th change ia Qd PED > chem ing. ofginal Te chonge in P original 4, change in F A PED= ABQ = 4.297 ( celeste) 48 2) PED? Bz otk’ belastic) “30 OS 8 ; t) PED = = “AUT elastid 3) PED = 2 70.9 bnelenie} 410 b) Pens , 46. ~ 29 30 4 20 -& F Cunitery)4 PED 3) PED PED = © (perfectly BMeloste) 40) BED = BL, Fh 2 72.08 CL elastic) tt A3 = 0 leerlectly inelesne) AS 2°0.16 elestic) “96Retee Elastic! wa. 2orecte La Dia geammacie The slope of a demand curve qives an indication of she PED tee a produce, However, the PED tor « product’s demand curve wil vory along irs length (see later notes) Tr general the gteeeer the clope st a demand curve the more inelastic demond ir, In general the less steep. @ ¢glege of a demend curve is the mere elactic demand is. Bue... (see lecer) : Trelastic Demand (PEO 1 bewween “4 and 0) Qaantiog alee — Originally ae Prqe ,TR> area OPr eran fe TA significant 4P (Peete) —™ less than proportionate © QD lgeeae) ~ New TR = area Ofrerde “Therefore a gfice rive has led to a cle ia total revenue Pt oTRt (oPeecar > ovrecqe) lacie Demand (PED is between -1 and) Price Baaating obs> Rise in petee from Pr to Pe hes lead ¢2 a greater pregortionate fall in quontity demanded trom qe te qe (demand is elasece) ~ Because Demand is elastic , the rise mm price nas lead to a tall tm total revenue. — Oren Of2 Eraqa jis less than area of Er qn. lemgorvont) NB As mentioned above, although the slope of a demand curve cam give an indicarion of the P. elasticiuy sf demand for a produce, any linear down word sloping demond curve will have varying elasticiey long its lengeh as shown below. PED inelastic pPEd= 0 end tye. tah _lenstam Rlerough mest demand curves have varying PED along thei length there are three demond curves where PED will be Courtant Perfect, Twelasic Demend (PED = 0) aclasne a Qe will mob at all chomge tn response to price champePerlectly Elastic Demand (PED = * <0) h D EE Hasixe ( | 1 1 { Xe 4 There is only one possible and (iq theory) ony quantity ney te demanded at this price leq. perfectly competitive meckers - see later notes) 3 Cave (PED « “4) rectangular hyperbola PXQ = maximum TR @ any point on a rectongular hyperbola D carve (where PED is alway -1)XED valuer GQ! 4 The number and clereners of sulastinares. ~ The availability of close cubsritutes i the mest importont factor aflecting PED. The more substitute? a produce has the more elastic demand it hat. Alo , the closer rhe sulostitutes the more elastic demomd ir will have. 1) The necessity of the produce and how witely the produce ir delined 7 Necessary products such as food have inelese demand when defined in general terms. As the produce becomes ware feecihtc such #5 meat the PED becomes relatively more elartic because chere ane many competing groducer such ai erher meats « vegetables. Wide defaittons will usually have im elastic demand (food) and more specitied definition cil Mnewe increasingly ele sete PED. Te 1s importomt te remember that wecessiny is sabjeceive and con depend on barter and tulrare: Habit ~ forming goods may have veny inelastic demand for lertain people. 2) The rime period tancidered ~ As the price of a product changes ce bakes time Bor Zoasumers tO chemge theiv leuying and Consumption habits. Ta general, PEO bends to be more taelartic In the short term ard than becomes more elastic over time, Cross olatricity of demand (yEO) XED is a meamre of how much tne demand for a Product chamges when there if A change in the price of another produce. XED = %e ch eokuce Ye chamegin Pol product ¥ YED evplains the veletionship berween products. Th WED vatue is positive = products are substrates. TL XEO value i negative > products ore Lomylements . Negative Zero Positive - > welationip cbbe remake Unrelated Femote dose Complements complements preducts Suns tieates sulosrieue esStudent Werkpoiat 4.5 ) LB: $5 + 4.60 f$ , 600 - 630 cans S$: LOO - 340 sandwiches % & QDd eb produce X XED = Zod P of product ¥ = = e/o 78 fs FAR LG's amd 35's products ove remote subsricurer, The velue hor KED We a positive value bur grill velatively close ro O- J XED = S25 “6% 2 70.629 WY LG's semdwicres and sole drink cons are femete Complement NED value ts Aegutive number Close to O- Thcome elasticity of demand (ED) SYED ie a measmre of how much the demand dor 4 eroduce changes when there is a Change in the consumers Income “YED > So DB tn QD of sine product Plo Dia income oh Ene cons. * The neg. or pos. sign ob phe YED tadicates if the produce XS a nor ma good of inferior good. “OEE ¥ED value is poss product is a normal good “TE YED vnlee is neg © produce ts en tuberior seed. An YED value Semween O and F{ is Income -imelastic. “An VED value greater thon 1 is Income -elastic. Necessiny goods Uke ool have Low income elasticity which means the demend for them will change very Urrle OF inmome increases, Superior goods Uke foreign Wokdays have Wigh Income elarticity, thelr demand changes étquificently 49 Lrcome iacvease 5he foundations o, oon 07/09/12. Fidom Sonith - Father of medem economics Weare the fiest economics book ,“An mguiry mito the Mature and causes of the Wealth of Nations” in 1746. “Back war written at the beginning of the Didustrial Revelution Following che Tadustrial Revolution use af machinery mereased, banks for yavesting emenged and the stock exchange was been. — Smith believed ia a ‘free marker” with no mrerference trom governments (laissez-faire policy) This would leave producers and cotsumers te make their own decisions and maximise bereht from the marker system, He believed thar tle “tmasible hand” of comperition woull cerale in che most efficients outcome. —Wowever, he foresaw some problems such as firms working fogecher to exploit customers aud certain tirms growing large enough to dominate che ynrarker (elimination of competition) ~ is Heresies ore now comidered “classical economics ” “The orthedoy view of Ws ytme Was that che power of de leer marker wawll successfully allocate resources. Economics / Social Science “Study of people in a society and how then mnberacted wich each other “Human needs onl wants are intintie whereas resources ore dinite. ~ Economies is He seady of rationing systems Te is che study of, how scarce resources ore allocated to bul bil she tafeaite wents of consumert People cannot have evergthing they desire $0 cononates ix necestary v0 distribure finite resources.Equa Teds. Del. Numerical Elatietuy Caleularions Test Review 42/4t/t2 Price clasticity of demand (PED) “A measure of how much the quoneity demonded of A product chonges when there iy a change im the price of o product. ooo Os FED = % o Po i) AGL y otig.P PED = orig, QA AP — Responsiveness of Gd te a change ia the P ob the product e self. O and “A = nelastte demand A ond © = elastic demand O = perbectty elastic demand “00 = perbecely elestte demand an lets Unitary elaste demand inelastic Saiiaccoranl ort te eS 4 + + perbectey nt ony peclectty inelastic. hasric coher to notes from 29/10/12, “Price Llartiity of Demand” Coass elasticity ch temend (XED) —PL meanne of how much the demand for a eroduct Changes when there is a chonge Mm the price of another produce | Saceeeeetsaee | ob pro. MED slo AP dk groduce ¥ | be) HOLsX arg PobY XED= ong. QL ob X aP bY — Responsiveness of the Qd of one product to a Change in the price oP another product.Base, With YED she dividing volue is O. “TR onswer is positive the two products ore substitutes or now negative 4“ & “ “ complements negarive ( int eee titel Teme uarelared remere cere complemenss — comolenments produces swsnees Substitutes Trcome elasticity ch demand (YEO) Del. -A measure of how much the demand for a eroduct chomges when there is a change in the consumer 's tacome. EEE eee Lau. oe a eraduact: LYED. the Min income ob consn. (er) AQA y gelg. tacome YED = geig. QU BD income Teds Del - Responsiveness of the Qd of a product to a change in consumers! income, Fioru, With YED the dividing value is 0 * TR the oamwer is povsivive the produce is a normal goed. sak v negative 4 uu interior goed With pormel goods there is a further division HP bewveen O and +{ , income inelastic (necessities) * grearer than FA, income elastic luxuries) Quatre. YER. neaorive posieeve taterior goods normal goods lacome inelastic Income elastic Co 4) (>Elasticity of sueely OPES) Del. - Responsiveness of Qs of a product to a chenge in its price Eau, fo 0 PES = % A iP] or OR. orl B PES = grig. Qs aP te Lasee fhes/ eter eae Ouvshine ; ‘ + * perlecely uni acy pertectly taelartic sxpely elastic Vow easily can producers change their Os when Price thomyes 7Descorinanss ds Peice. ee se Od fe 4) How wel torts rise as oweput if incopattel ~ Th com ob production rises Beer oo producers attempt te \ncrease supply the producers will not raise the supply. Se, the elasticity of sapply for the graduck will be relatively twelasric. Te woul take alarge price increase to yrakee ib worthwhile for producers to increase supply. Tb, however, cot ab production deen {ucread siquificantly, she producers will raise quomeity supplied to dake advantage of Wigher income There ace two fattors that prevene a signilicoak rise fa Comte a) The evistence ol vnused capacity i amused capacity is preseat she clareiciey of supply will be relorively Wigh for the product. S) Th A « rodus ib Factors of production ore easily moyed K 7) The time period considered more — The longer the Hme perod Considered the*elascic the Supply will be. Time allow! producers to incree thew copactetes D The abiliey to seore stock, ~ Th « fre is able te store high Levels oh stock of thee products whey wilh be able to realt to am incvesse im prices. The PES for the produce will be relatively oloutte by Dias rons ®© Elasric supply (Eo S$ > +1) Quomrtey of + TP —> greater fe TQSO Trea supely (ELS O70 Price bo. Quoatiey ofc. TP © smaller *% TQS O© Perlesly Elasece sagely LE of § = 02) Pree. Qomoting sheer AD Cor DB Q) will have no effecr on the price af the product Cem. where the marker incemed comeermed Uy a May Park of te overall market Gor fuseher infos mation) O Perheerty Trelanic supply LE of $ =O) — see intetnatonal cconumts Price cb Oem 4 Qs comot/ wills change tn CeIpOse to a change ca Olchange tn P. Leg, fined capacity theater, Sports seadia,Price Oh. Qronting oh Prey linear /seraight line S carve which passes throug the origin will have unirorg elasticity of supply. Yo eve PD equals rf tise In auentinn supplted * Sad of claticity unitGovernment Tarervention ta Markets (Cropter S ab Textbook) “Tn economies which are Cundomentally free morker economies, governments will still inbervene in certain markets, Reams bor this intervention will very bur tactude raising tax revenne Gor government spendtag, supporting (Certain groups ob producers oe consumery and correcting what may be regarded as marker failure + Three main methods which governments may “ie to iateruene 'n markets. are} © Price controls Lamininum and maximum prices) Otrdicecr taxes © Sulesidies ) Price congeels Ta 4 bree marker resource: are allocated and prices are determined through the QRorces of supply and demend A change ia market Conditions (a chenge ia tine hactars olfecring the demand of supply of a product shown by suites of the D or $ curve) will lead to a change Lqpilileiam grice. Tr is argued thar the marker system leads to on allocation of wesources which rellecty the wishes of commumers and sucpliers However, governments may feel that rhe free market System may result ta ericer bying too low Cso thar producers supply toe Wile) or tou Wigh (so thet Lomumers consume koo lle) of that markets conditions chonge so frequently thar prices Puctuate continually causing Uuncertataiy amangst suppliers and Lomsumers. beverment prom therefore intervene te prevenk orice? Lalling feo lew or rising tee Wish of to Ley by srabilie peices,@ Minimum ociver (Price Floss’) A minimum peice exists when a government doer not allow the erie fora product te fall below a certain level. Minin prices ore imtvoduced primarily fo support producers on supeliers, go thak thes are willing to produce and sueply their eveduce bo the morker, 2:9. many Countries use minimum erices for agricultural ereducts, Also, many gevermments have introduced minimum wages, he a minimum pnice for lebour, TAS with omy fern of government intervention Im a marker there will be different impaces on different stakehalbees ( « Srakelrolier is omy Person or a group of pesele which ts alfecced bg a change, 2g, producers, rupeliers, owners of Rims, cousamers, urerkert, goverment ,local f@ridents ond others) Minimum prices (or minima wages) will only have an impeach ik ane free market equilibecum price falls below the minimum eeite, 4 Sa Pani Quentin of whear The diagram above shows ere vrorket for whear in a countny. The equi mam peice for wheat, Pr, ls above the government Tenposed ratatmum rice, Pain. Currentty, therefore, price Py us Whe price which prevails and quanring qu is bought and sold. Tre mtaimun price does not impach the market A drange ia marker conditions now sccurs which results WA GK intense te supply te Se as shown om the otherPrice of wheat. Pain Ye 4) Pasta Q of whee Na surplus fexcess cueely Te dtagrem above sheurs that ta a fvee marker the equilorium gvice woull vou fall te Pa. towever, the goveramemr does not allow phe price te fall below Paria Pre min, however, the market dogs wot clear. The Qs ir greater nan Qi and there ts a surplus or exces supply Mh wheat iA phe marker. The government's tavolvemenr ta the marker Was creared Khe surplus. Unless te neveramentr tnbevuenes further Prokucern wit surplus produces will athemph to sell cheir sumplures wnsthtcially at a price leelow Pads ur above che eapilibrium peice Pe. This moy Undermine the geverament & economic arttnartery aad lead te the ceention of a ‘black. Vanotlictal marker! ‘parallel racket! of a “shadow marker, worker’ Ways ta utch rhe government com intervene Include Luging up the surplus os - ad trom supplies at Pmin and trerlas te to provide food security for posible velease in future Limes shortage. (‘butter stacks!) BUT —™ problems of sterage (Lost, perishable (tems), high pricer for consumers gevernment COM pay producers to “see aside” productive Namd bar ceil paw for the predicred Warvesr. Thir Way the producers sHU receive minimum erie Jouk new Were ts ne cups, There lore wax money is nok ured Ror Forage and so Aacth...producers ran le Vmited by quotas witch reverie supply. This weulh mean that at price mia. pay 4 Wired number of producers would stay in business. © gue government could attemph te increase hemand dor tht produce Woy advertising © jovernments cam cesernich Imports chreugh protectionisn policies to mcreare demand ter domesic groducrs- Sa Pavia Quantity ob Labour 2) Minimwm WAge ensues the protection cb Hee lower working clas ond cacourages Ham to supply Klein labour, Unemployement present, ID Comployers have co pay bighes than the Pe so die workforce udatch increases There cost of production. They may nose to employ Fewer workers se cep down cor +b probuceion, 4) Subsidese employersAMC 4h (() Moximuna acices (ice ceilings) — The aim oh matimum prices is to prefect Consumers, Tn some Countries mat prices are introduced for groduccs which governments feel are se important yhar they want to keep their price within the reach oF “ordinary consumers” 2.9 staple food especially deiri'ag a time ob shortage due to natural disasters, wor, etc..), rented accomodation, Marina grices unilh only Wave on imyact th the equilioiam erice ib absye the mawtmum price. ie. if ake goveenmen feels rhar the bree market price is too | high 40 be “Secidly acceptable”. Price a conics f 5 flats feb-~-- Pmax Prnor vot Loy ‘Pe i s4e ql — Shorrage Quontity of rented plats Fecause, in sme goveraments view the equilloium rent doe Wats is too high ar Pe, tk imposes a legally enfarcable price ceiling of Pman This cesulty ia a shortage of ak ~ 4s. Sugpliers of products may also deude to sell their products at Velow rhe equillbrium price, 24 gramoters ok concerts, theatre emrertatament and sporting eUeArS, This may be because they womb te ensure that the veaue fr full and thar wher, avoid crixisicon of exploiting comaumers by charging Wtgner aprees, €5 Hebets for the olympics and uorld cup.Rive ok Nekers Poray| ® Ta such q sthuation where a venne has a tived Copacthy the Stogrom woul) be at shown below. s Cane Quaaticg of Hkets As a resule of the imposition of maximum erices shortages are created. Ths may result in the creatten ob a black morker whereby greducts lor tickers) are sold illegally doove she manimum erice. To try so reduce the Vkelyhood of a black market sitnation arising and/or +o deal with he impace of the shortage there ar@ several epttoas available +o a government. There are some wayf through which governmenty can deal wtth shortages; deccease demand until equilibrium is reached at marioum price, limiting the Consumption of the produce. Demand tom be decreased Hrrough advertising aad PSA. increase supply until equilibriam readed at Pman. Supply con lve {acreased through government subsidies te producers +o entourage increnied eroduction, governments tould Stack fo produce the product chemselues or release stored geode inte che marker i there have been buller stocks. As Perishable goods cannot We stored the lat saluvion would wor watk for ell goods such 9s bread and feoak. (ish.23741142 4 Indirect Taxes A tax is 4 compulsory traasber of funds trom the private Sector to the public sector (ie geerument). Tores com be divided ito two main categories s Direct faves les. income bOKes, wealth tax takes on Heute profiss, ett...). They ore “Sirece” becawe the burden or incidence of the tax cannot be transtered te someone else. Th tacome tay rater in an economy are increased then households’ disposable income (income after fax ond other Compulsory deductions) will 4a leading fo fall to the demend for most goods amd services (normal goods), soe later. * Tndicece tenes (eg. expenditure foxes, sales taves, VAT [value added ox J TVA [tare de volear ajoutcel, K-D.V karma deger vergisi], exuse raxes /dusies, imgoet taxe:/taritts), Tadivect taxes are “indirect” because , although te ts the cespoasilbity of the seller of rhe product to pry the tan te the sovermment the sellee may tranrter some oh the burden / incidence to the Comsamer fa the form ob « higher selling price. There are two ain forms of Mmainect ear W Specttic /Unre tax ie where a bixed monetery anoune th gax is levied or imposed on the sale of a produce, renordiess of tts original felling peice. eg a one franc 4ox on He sale of a betele wine. Cxuise taves (ie, additional taxes om produces ghat che government wents fo Aisrourage te Comsumptlon of such as alcohol , agereties ete ore odeen «spacilc taxes, A sped tax is shown by a shite of the produch’s supply carve to the lebe (oecause Lost of production of the seller increases) as a _poralleRice of Wine . 23/11) 12 4 ’ Quanesy of Wine () Percentage “'Ad Valorem’ Tan ) Bre Wire This when a percentage of the selling price ob a produce is levied as tak, 2.4 VAT o¢ KDV and Mare iene limite nent emagen ep unde can melltiiattaots/ sales tar imposed on a bette of wine woulh be a bax of A Grane on 2 8 Grane boule lout 10 branes on a SO brane bottle. Because ele WMoneheny cmetott sk tex paid with an ‘ad valorem’ tax (dereases a1 che selling grice inceeaser the tax woull be shown by an “angled” shift of Hee supply carve to che lebe where the vertical distance between tHe supply cHrucs (which represents he mone value ob he tox) beomes greater at higher prices ou Lo St Quanta af WineThe impact of indirece taxes on different stakeholders A stakeholder is any individual or group which is affected by an (economic) decisions Tn als case three shakelolders will be Unsidered; Consumers, producers and the government. Topact sf s specific tox As ceherred 10 prevtowly, the rergonsibility, of gaging a fax to “he government Key with ewe supplier (retailer. TWe canbe viewed as being similar 44 @ tise in Hue suppliers’ cost of production and will therefore be shown by a shift to the left ob the supply curve. The vertical distance beeween the old and new sugply carves a tuery quontity wlll equal the moneracy Grioune of kan paid eee une at that quonniey. Wh a specibic /uatk tax rhe same monerory value is composed per unir sold whatever +e origins! selling erie (eg TERE fant) and so He vertical Atstance Vereen whe two supply curves will be the same ap every price and quantity. (eg, in tre exercise the afer tax rupily earve war pacallel +0 the before tom supply curve and. he Vertical Aistonee Wetween ThE Hue curve! equaleh 2cde) Belore tee tax the supplier was willing te supply 6 units at « erica of LCE (univ. Alher the 2LHE/urie bax rhe sugelier woalb only cupply 6 uaies ch she i ledy with GC CHE alrer ue geveramanr receives ins tax, Therebore to supely & Unies now the supplier Would worr bo thane 8 CULEPrice oh mnpac f Seecthie Tax 2A Quamtitty of TR = Oe C14 the same Total consumers’ expenditore ~ 0p1e444 Bbrec sox Total consumer expenditure = Of2er qe ol dmisy Gov. tax revenue = € pe er © Sellers’ TRE OF CQe opr ee 4 = KRte re + ot cge The incidence oe burden af the tax, Epeeec, is divided beween the seller and the Consumer, The pace of the tax revenue box which lier above the old equilibrium price Pa cepresents the port of the tax thar the seller har been olole to pass on te the Consumer tn che form of « higher price. This ic refewes 40 as the inddence on the consumer. The part ob the Fax revenue box which lier below the original equiltbtium erice Py cepresents the pare of the tax hat the producer har been unable to pars oate the Lomvumer and represents the reduition in revenue per unit received by the producer after taxThe imeact of an Gd Valorem tax. 29/44/41 An ad valorem /percentage tax is when the amount vf tan levied is « percentage of the rolling price of she product. Because the same percentage Fax is a higher montrary value a higher erices thea ae (ower grices, The imposition of an ad valarem tax will resale in an angled shite of rhe rupely curve, The versteat distance between the two supply curves represents the monetary value of the tax paid at each quantity, oad will be greater ot Wigher gricer and Wrigher quantities. Se Sy epee aera ere TL Petwcer Z wu Quantity of veSpecibic Tax (Elasticity ond Graphs) 29Zea se O Dis more inelasnic tran Supely © Vis mare clastic than Supely i ! an 1- Tr general the mone inclarte the demand relative to supely (or the mone elasde the supply relative se demand} the graaker the inctlence of an indirece tex on the Lonsumer ie, «he seller ton pars more of the indirect Fox fo 4ne Consumer ia the form of a higher selling price, 2- The mone elastic the demand vetative so supply (more (aelamic supply celarive to demand) +he greater +e tacidence af the tor on the producer Le. che seller will nave ge absorle more ol the tax tn the Gorm of reduced revenue per unit because (omumers are relatively erice senikue aud will mop be wiling 4. gay sigaitccanely were fer CAE product.Therefore, f she government wishes 40 voice vevenud for tel, an tndivect tex on a produce wlth velarively inelastic demend wilh be more effective. Tp the main aim is te reduce production and/or consumption oh (he produce the ta, will be more affective on products with relatively elastic demandA subsidy is like a negative cadirecy tax, The government with pay producers or sellers a certain amount per unl produced, The imgact of this & thar the cost of supplying, rhe produce ta the market tor tiems is reduced. The granting of a rubsidy 40 producers mill be rhown by Oo shite te the eight of the supply curve for the pveduce, frowing that more will now be supplied at every selling erie and thar producers wih be willing es supply each quontity at a lower erice te Consumers than greviousty, "Pree of f wheat PRE fee ial D bo) a 4a 4a Quanting of wheat The vertical distane beemeen the rupply curves at the new equiltvrium quantity, ge, represents the amount paid as Subsidy per unit produced Reasons why governments will subsidise certain eveducts include 5 "To lower the price for consumers fo that the prices of basic essential products a9, stople foods ace affordable +2 all consumers "Teo lower the rice for consumers of products which the grverament wowrts co cncreos® the Consumption of which it views ar merit goods, ie products which generate positive externalities,and or where ele long term Lbeadits ob consumption matey not always We signiltcant ja consumers’ decistan moking. 2g healtvcore , puolic +ransport, cultural services, Wigher education To guarantee the supply eb producer which +h — gevernmentregards as being essential for the economy, e.g. aste foods ,energy supplies , major employer induseries et "Te pratece domestic industries deom foreiqn cmnpetivion Zn sugar in the EW. As mentioned above a subsidy will meen that a producer is willing to Supply a given quantity of the product bor « lower selling price than before the subsidy 6 granted The table velow shows a situatton when the gavernment Juroduces « 2 CHE /unit subsidy hor 4 groduct. Petce (ene) Qa Ora Qs 2 60 Ao 20 G oO. ao 30 6 30 30 bo 8 ro bo 50 Ao dv 50 bo Original), equilibrdam ervee and quamniey was 6CHF omd 30 units. Following the ZCHF/unit subsidy producers wih be willing so supply 2 certain quantity for 20tKe less chan previously because the government now pays them 2CHE Sanit, @. before the subsidy to supely CO uantes suppliers needed 49 charge 10 CHE /uath, Afner tae sulesidy they are willtay to supply SO nails for a pre of FCUF Bs the government will pay an additional Zee so Hret t0CHF overell recerved per une. Following the subsidy, he new equilibrium price wilh be SCHE per unt with 35 units bought and sold.As mentioned on te previous page, 4 subsidy aill shift the supply curve to the cight ond the vertcal distance Letween the supply curves at the new level of output represenks the value of the subsidy per unit, Sow Sa eee P [Bene Pit +0 producer \ex years septa P LESS semaner a Da Lo ° oH > 4 4t 30 35 Quontiey oboe Beloce Subsidy Torch expenditure by consumers opr er as Totol revenne ley sellers Abeer sutosidy Total expendique by consumers = Ope 2qe Revenne received oy sellers trom cour. = OP2e2qe Subsidy paid by the gov. to che sellers = praber “Total cevenne from cons. + gov Lsubsidy) = cabge The total subsiby paid is equal fo area Pe abe.(¥o CHE) The benebit of the subsidy is split between xhe seller ond the consumer. The seller peceives an exeva Pra C1 CIE) per wank and sells 04,2 (35 units), Therefore the share of she subsidy received bby producers ts area piabe (35CHE). The congumer pays ecp2 (Ice) lets per unit then Welere , and consumer oge (35) onits, The shore of the subsidy received by consumers Ws therlere aren pepe cee (8S CHE),Both preducers ond consumers of the produce have Veorefitied Arom the subsidy. However, the government (and wherelore the aK payers) ore bearing the burdenosher failure 40/4212 Ta a free market the resources are allocated to the production o goods ond serucces accordiag to the eriaciples of supply and demand. The law of demand assumes that consumers will make their consumption decisions loaced upon the welationship berveen the price of +he product and the expected Uslity or benefit from the consumption of the product i.e, according to tte celatriomlip betweer the grivete costs sf consusaption to them as cCongumers ond the peivate benefies of tonsumabion Similorly rhe lore of supply assumes thar producers and suppliers will make their ereductlon dectsions Wased upon the relationship between the private costs of production to them omd the rivate benelit: ok production, However , the producelen and Lonsumphion process mos resulk iA a negative of positive impact on peoele net Sirectly invelued ia the production /consumprion process. ie. An impact on thirk parties (not you /not me) Tr such a situation the operations of a free morker may Fail to allocate resources ia on optimal wam ond go xhe motket is ser to ‘fail! to allocate resources efficiently. There mony be other situations where rhe bree maker may fail to produce or under produce products in Society’ s best interest of Where che operation of a free morket man result in an tmbalance of mocker power bemucen [erent arenesVilleremer sypes ob market failures will be coandered « @ Existence of excernatities Merit ageods Demerit goods © Public geeds © Common access resources © Biymetece iabermation © Weure of monegely power © The existance of Externalivie ekbernalities ~ te impact of ecoromic activity on thied parties ie. on iadividualr and groaes nek directly Javolved in the production (Consumption process, private certs — the cares /negative impace of production! Lonsumption which are borne directly by the groducers andlor consumers ol o product. External cots - Lak.a. negative ekteraalities) costs / negative impact of msc = MsB | Renetits of Consumpbsor ' S/ mse = MPC Price ob vaccina tions Mpa RH Guenteiy of vaccinations Ta she marker flor vaccinations there isa divergence berwee. private benefits and social benefit». ic. external benebitr / positive exrecnalities of contamprion exist. Private benefits athe benelits of being voccinated te the consumer in the ceduction of Wis/her changes of getting a disease, which he/rhe weald be willing #2 poy for. Exteencl benehes - the benelit te everyone else. ok xtc person. being. vaccinated in that everyone ese Ub now. less \ikely te 92t the disease * Seciali benelits = Private bemefins + External benebitsTa the Stageam on the oxker side, the free morker level of consumetion is at qr, where marginal private benekits (MPG) equal marginal cosee (msc), The secially optimum level of consumption is where WEB [marginal social benetis) equals mse, ve. at g® P% The privote/ fvee macket level of consumption (qi) is less thaa rhe soclally optinmmm level ol consumption lat), For every writ consumed vp to gi marginal social Wwenelit Lmsg) is greaher the yrarginal social cost (WSC) and che potential welore gain from iacreased consumption updo a” is shown by the red triangle, ‘Re ie sncet(ty The production process may cesult in positive ekternalitier, ie a positlue impact ol she production process on third pocties. 2.9. the production of honey requires bees which , as well ar producing honey, may alt pollinate Logs and orchards in the area renting In greater output at crops. Therefore . » farmer may benefit from a nearby Loney producer. This increased greductivity far the Loomer wih ceduce the Average costs of production of crops. Querall, therefore, the sotal cos to society of producing honey har been counteratceh boy the benefits yo farmers. Ths woulh be shown by a diverqance betwee MPC ond MSC equcl to che external bemefies ob the production process.Producers of Woney will make their production decisions Acording to their private costs ob production. This will result in a morker equillriuna price and quantity Hh Pega. TL che production of honey io providing excerna| benefes fo thied poetics leg to local farmers) khen chere will be a divergence MPC and MSC, equal to the external benefits «| honey production. The sacially optiaum Level o output will therefore be Nigher at at Every unih up to 4% marginal social venebit is greaher than marainal social cost, (MsB > MSC) ond therefore society 21 4 whole would Wenebit if production was increased Prom the Gree marker Heueleb qi te che socially opriaum level of qa. The shaded brionghe, therefore, represents porestial wellere gain i.e. the extra benebit te Society which could result trom Yacreased production and consumption levels. Extecnal Costs of Consumption At fotet 2:9 passive Smoking , chewing gum, alcohol, drugs - oe S/IOSC Price ob |S lapncethes dgcester | pucitere loss PRP = = Di/MPB — Quantity of cigarettes ae 44 Consumers ob cigarettes will mele their Consmprion decistons based upon the relatienship between the private celts of obmeking te them and He private benebies. to. them They with Comsame om the MPR carve and consumption levelswill be at qt, However, the elfectr of posive smoking on thied pecties creates an external Coit of consump Kon and therefore tre demand Curve derived Krom whe cost amd beneliti of smoking to secieny WSR) will lie to the lef of the MPB curve As cluags the Socially primum Level ol consumption and production te where MSG RMSC Le ae g™. Consumption bared upen private benebin would be at qa and therefore there i> over produceden and consumption compared to the level thought to be th societyls best curerese. The shaded tviangle represents the excess of WSC over MSB for each unit Consumed above queatity qa, te. the welfare loss wich ortses due te the existance of the negative Cxeernalities of consumphion@ ub ok s AgsOt(AI Merit goods are products which con be grovided by the merker mechanism (it. they provide private benehin are excudale and are rival in cConcumpton — Fee notes on ‘public goods’) but which if Lele co the free mrorker would be underprovided and/or uaderconumed compared to ache level which Uo regerded as belag in Seciety’s lest lnberert, €.9 mort sbuious examples of mer't geods would iachude educorion, Wealtheare public eromspor’, The main weasons for the underevouision of merit goads by the Cree merker ore } the exictence s| positive externalities [see ereviou notes) where there 1% a Livergance betmeen long-term beneltes and short-team benebits where there (5 a lack of perfect information to Conmamert abour rhe venefics, 2.9. pension Lunds , preventive healttncoe ee Therefore, whet determiner whether a produce if or ismt aw merit good will be nacmarive ie. i wilh be bared upon the dominant view of society at thar goiwr im Hme. Mico, iv would depend upon Whether the government feels ib has We resources te be able to promde these merit goods /, Adferens levels ob provision of medical and social services in Wigner iacome compored to lower income Lommiier ia times AL mconomic dffrculty governments Curving spending on supe ert Bor ne ots, eens Governments mo seek +0 Seal with Undergrovision of merce goods in different wouys - 2g. complete gravision by the government, gouernmenr provision to Fep-up Pyivore sector provision subsidies foc private fame etd... 7lsee later notes) (Diagrarin, Showing mecie goods ore the seme a1 toe for positive exbermalines oh Conumption and production.)Tots ® Demerit Goods Demerit goods are products whic can be erovided by the bree morker bur are likely to be overproduced andlor overconsumed Gmpored to what is thought 4s be iq society’s best interest. eg alcohol, cigarettes, deugs and guas. The main reasons bor overprovision ob demerit goods includes * The existance of negative Cxternalitier ef consumption and/or production + The longterm Costs may aot be obvious due vo lack of talormation or tack of acceptance, &g. dyaretes Governments wren, seek to deal utth demerit goods in diferens ways , romging Prom banning completely , Gs. alkohol in Kuwaik) reguiaring the morker(e.g. age restrictions on We sale of alcohol } taxation , information Lompalgns and etc. (For Aiagnam analysis see negakive exeernalqies)AROS @ Pdi Goods Note: Privaze goods ore products which can be rou(sed by the Pree morkes because they have two key Characteristics; Vig + ic is pessible so prevent someone from consuming the produce. e.g, by charging @ price bor tr = there is am opportanity cont (a consumption The consumption eb the product by one person reduces the amount available tor consumption by evergbedy else. 2-9 a cake Nore: Public geeds cannot be provided bby the bree merker because they have the opposite choaracreristles 4 "Mon-excladable - once trey are provided t+ is impossible to prevent somebody trom Consuming the produce. “ Mon-rival iA Lonsumption - Khare is no opportunity cost ob consumption The consumption of one €xera unit does not diminish the amount oh the groduce available for consumetion loy ormers 2.9 national lelenge systems, J Hook control meamunes , eke. An example of a public gooh would be Mood deboncer such as the Thames Barrier wm borden, Thi was built to grevent London trom Hooding. Te is won-exdudable becouse th is impossible to prevent anyene Living in cht prokected crea from being protected, Ths characterise of non-excladabiliy rosules sa the free cider’ eroblemm, With public goods once they are povided ansledy con benefit witrour paying therehore ne rational consumer world We willing to pry for the polar amd no private geaor erotuter woulk be willag go SMppy he without government isveruelagion. The Thome Borrier ts abo nea-rival tn consumption ie. the Sconsumprion” of flood dekances by one extra persondoes nor add to the core of pravition sie. there is/as speortaaity cout oh addirtonal consumption Uthe marginal core ok comsamption is 0), A elicd choracterish'e of. eure gulelic goods \s that they are yenvreleccable (2. once provides everyone. “henebins wheter or ner they Warr to 4a. iF is tanporsible for someone Wiag 4 the Plosd grotected arga of Lendon to spt our of the barter pre keck’ on Pulse goods are the mor extreme oxomple of marker Railurg, because ray ave aon-excludable ond non-rival iA tonsumerion, TR lele to ne free marker shay waulk not pe provided, Therelore, tre government will need te provide them dinectly itsell or pay pmvore secror beme 4o provide, twem tn tts behalh Lead for eu of tavation) , Quasi Public Goods moy howe One on more of the, Cavenories CharacterisHes pulolic goods bur are really o Koran ok meri good in that dey, cwoulh be erovided by whe private Sector €-) a national pork may be non-nival bur can lee excludeble through a price Charged for ntry. Telenision /radio: broadcasts used to be non-exclutable bur technology hei made & possible to erevemh gevple trom oncaming chem unless they pay fer the sobtwore necesany. Such broadatts are, however, rll aon - tual2ator/4 (Py 1LpF- 453) - section on Diplema Course Guide used as om curling for woes drom the texthook ports mentones (Py ASZ) — Asymmetric Info / Twwertect- Tate Co Cus eesomrces and Lurtee threats’ fo su Common access resources aka: common-posl resources Commenoa property fesources. Common access resources ore typically natural verources e-4 fishing grounds, orests and pastures o¢ human-made systems for the management of nelrarol resources 9 ivtigation Mmsrems. The main charactertste of such resources is that they ave Per-excludadle meaning thar & Ls very difficult sr expensive to extlade people trom asing them. Ain example weuld be the presence of fishing grounds near a village where every wilager aims 4s dik ar much as possible to marwmise thelr abiliey, Tr thts eae the benefits to the individual ourweigh rhe external corr ond provide the individual the Mcenmtve + ever cone. A market failne will take place because of bver-consumprion OL common access resources. Surrataability exties where the consumetion needs of the present generakton ore met Wwithoux reducing the ability to meet the needs of Rue generators, With lommnon access resources dug #0 euerconsumpion ma fhe present Jusune resources ane degered The Lack of a price. dor common access g00ds means thot they ore alanase Wound to We over -commmmed and so then will eventually eu our The use and production fb Gorsil Ruels creares negattve externaliies od production and consumption, the fact thar producers and consmmecd ate. nok able to accounme for THe external Corts to fumne generations meanr thot forsil fuelr ore a beck over produced ond over -coasumed and vepvesents & Ryniftcarr mockee failure.of consumetion of fesstl Quel j WAsSe Rice fossil fuels is \ mee 5» Qromney ob foil Prete + Fa economically Less developed countries negatluZ external van be created through dver explotration of sk land for agriculture ond Har poses a thyeat Ho sustainability. For ekomele, in communttter where the main source ob fuel is wood , forests will be cus down. When existing wees ore cue down people aust traul greater distances to access the woods , flooding or landslides may ensue due to lack of vegetation and the lord may become iaRerstle, This creates a vicious cucle of poverty for the local communteies amd depleres the local resources for Aucare generations S an cetpon aes Cap and trade sustemnss Since threars te sustalanbility Crestes national Werder ond ekrenss to future generatens solutions requive incernotionn agreemenss and forward thinking, Targets ore Set and incentives ore created te encourage govern mens LEvoms to cen them. Cleon serhnoleaies } Since eee use ob fossil Lucs creates ro mony neqanve externalitie much atenon (nar been given +2 che developmor tb deen teabnelegicy rach ao cenewable sources § energy Looueenmmentk con fulosidlie ERE innovations by offering pay tredies to Biren dhet invesr wo clean recluoligesNegative! Ertecnaliien of Consumption Pace ob + msc. Cigoretes PE 2 List foreseen 1 ae uy MPR Ds i tt aE Quontiy af Ggorethes ee Externalities of Production 'Retce of Sa /MSC mec /54 Eecertelty ee [sete F woellare loss Pb | | wsB 4 i 2 Quang ob electricity GSrerg Terra gre @eeceeea erect Poisinel Excernaliries of — Consumptioa Price tt )Vecelaottons wellere yon Par am i “Qusnatey ob vaceinetions aw Poscvel Exrerantivies ob Pabuction Price ob MSC honey Pa, a pore Wb welkowe gecnPrice of texiiles Price of booster seatr o | Pe a Legislation to decrease cum ‘ce msc : ms Guenney of textiles ae ae enjslation te mecease demand msc ms Quontity of booseer seats,3\anuiany (208 Government Respowse to Worker § Externalities , Merit Demerit Goods ¢ Pullic boeds There ace waaay different approaches which governments could ase to adders gues arising trom the failure of the marker system to allocate resources efficiently. These will inchde direct gjevernmens provision , Legislation , taxation, subsidies, government advertising information and tradeable permits the different metiods discussed will be coasidered not ta the srder of caletiue impertonce bur ia the eordee al degree ol governmertt involvement, in the proviten dh the product @ Dicer govermment provisioy Deb Ths o when the government provides products itsell completely or where Lb eaters the marker to “foe up" private sector provision.” Vis approach usually involves products loeing provided either Bree of Charge te the consumer (paid Por ou eb taxation) or & a heavily subsidired price (paid for ons of taxation), Public goods provision is usaally undertaken ta this wag. Unless governments provide public goods they will not lee provided, due 10 the characteristics of non~excludability and aon - rivalry iA consumption. Governments wilh usually provibe she produce itselb aivecty Cour of tevarion) e.g, national defence, or bmore corely) employ private [inms to evovike the Rulic good with the government paying atl of rhe costs, £4. some Hoot defences. Weeit goods may alo be Aivectly provided by governments Depending upon the view ol society government provision may account bor he maloriey of the grovition{ eg. healt care , education, Ar gouertmenr provision may be uced to Wakeup for the shertdal Wy private sector provirion or to Coordiaare che provision between private ond public sectors (e.g pullic transport).Demecit ards mey be grovided directly hy govermmenrt in order to cantrol their provisions with an aim to reducing the tonpact ob negarive enternalitves e.g. sales af aleohal ta Finlond and Comada are only allowed through geverament outlets Ta addivion espectally ta the to century when “dhe cole of the qovernmenr in the etonamy uni ober grenter, the process th warionalication (kroner ob oumersip oh economte activity trom the private sector te the publie sector) meant that im yheory negative extenalites coull be addrewed hecatre +b ere lack of rhe erobit motive and so cleamer merhods ob production coulh be used. Tn practise however, the deive for etonomic growth Was often meant that centrally glaaned eionomies are ac lease ar likely to suffer from gollucion , ere os mare (ree market econamries © Lesisherion Governments may introduce laws on ruler designed to ether [nit the production ank conramption of demerit qoodr or produces causing magative externoMeie, or to increase the production ANd consumption of merit gosdr of prakucrs cosine positive externalities Ly. government rater on levels of gulbition thar Ainms are allowed te cause (Clean Ric Met, Londen), age Limits on parekere of alechal and Ugaretres, gurchare db brewarks et. Goverment rater witch impact en Hae production process woull increase Aiems’ corr ok groduction, resulting in 4 Baile to rae bebe ob tinms’ supply curves CPC) and so reduccng the wallace loss. The agra bo the right shows the impace On the temeile ladustwy ob new regulations derigned to reduce the potential ecm be workers’ health, by entoraing te use af rednwalony deitgael eo remove tentile porticles from He air of He fattary.Large @ = sig, welere lors Small 4 = new welbare loss Quanity ob tertiles Oneginally tems produced quentity qi luhere theie MPL exe, MPC, curs HAE Lemond aorve, MSG)ME qe there is a Uivergence privare eoits and sectal Coste 12. negative “externalities of production exist. The socially egtimum level ob output is ar ga, For every min produced above gx MSC are aveater than MSG, Therefore, at eureut qi the total werlare less % shown ley the ‘lerge’ triongle, hawt oa Ynaproving working Condirions saith which require Btoms to Use extra machinery wil ftherease the Rirmis cost of wprohuction . This will 2 shown ley a shibt vo the tebe ol tle birm’s MPC curve to WMPC2, Oureur levels fall from ac to gz ond the level of welfare ler is reduced to Khe Small’ eniongle, However, the impact of the chomge ta the lew may uot be altally bene Picco fo all stakeholders. Conditions of work for bexeile employees val improve ond there ore likely to be improvements to ain quality. However reduced ourput may freon that less workers are ennplyed. Alea, Lem ore likely to waake les profits. Tn addition the Wigher felling price ob te may make che countrys teatile industry ler wompennve compared to eratgn Hans, Government cules which (pace oa the comumption process will aim at inllrenciag the demond fer a product so thar the Aivergence bereen the MPG and de MgB i reduced, Th the disgram od the over side, the (Atroduction of laws requiringbearter seats the we of chilh booster sears will increase the demand for whem, mse. Daces eotenrial wefare gain Db =new, porential welfere gain (Gates taalticeane iyi wcerce lianas) a 4t 4 Queries ob beaster sears Behore thre change ta tre law demeond curve for lesser state is Showa by curve MPBs amd ga ore comumed. Thy o below te focally optimum level of Lnjumeton qa Lwhere Ms = Msc) The lore shaded triangle shows he extra benefice to sociees whtd tonlh be gained tb demand trereased te the socially opie level Following the Miveduction of the law the demand /WWPP curve Wilts ro ghe rior increasdns consumption levels to qr. The ne theded section d te seigcnal tviengle represent the increated wellore gained by cociety 49 4 rerult ob a chenye wa ee Louw [Alio, a chonge tn dhe lous would make Semand for beosrer senate wach mere inelastic) Legrlation may also be ured to reduce demend tor a Produce which genemmes negarue Orcemalitter ob consume hod Lj. ia the morkee Cor Ktgenerher Tarsing Che minimum age requived for parchare The Uagrom on the eight shows the taygoce leptlarion atmeh ar reducing ME Lonsuwaphion eL Cigarettes white | ane tsaridered fo be demerit goods and have Mererve extoraalives ob Consumption.Pree eigeretter Pa Pa Poe org, welbare loss 4 t new wiellane less Buannty ob ctgeveres Belene te chonge ta law the demand come for cigarettes war above the sactally ogrianunn level, Fallswing ae Mercere a tha minimum age fo tonramegeion demand folly to ge, wlicel er dhever te gas [For wong detail lek ar prewour neres) © oxation, Tadirect taxes leg, saler taxes) con be used te reduce greduction and/or conrumaykion ob praducts generating external cots of production and/or Comsumphion: Trdirece daves ere shown by a shift ta the lebe of « firm's supply carve, MPC curve, Placing a tax on the production of demerix goods goods Which generate wegarive exrernales of production wih reduce levels sf output and sensametion and veluce weilore loss 2 Shown below. Mie of sadieert fevattion en denrerie goods Lert. corts of reduction) Pace of, textes Pe Catone {du esthatien) 4: org, walfere lors 4 new wellbore Les Ruamting of pexeibes (Reker ack ts \egslation diagram for detailed aetes)Use of tadivect roanion 1 demerit saode (ext. cores. of, sine) ; ; “\pveraaine the The use of indirect canes may be effective iq reducing externality” make levels d consumytion cased by démerte goods or other fhe camser ob neg, grodurtr Qeneraring negative externotiter ob consumption, ext pay. An indirect tax increases the coits of supply and will henetore shir the supply curve /MSC curve to the tebe, This wil redue he auontih, demanded of the produce due te * rise ta peice The level of wellere less will reduce. Mise tax Pecce of So ase C= mec) aloha Qs new weltere loss a % q Forts, wellbore loss Pal _ LFA Naso PB Qaoneity af alestal Qe nde Evaluation: However, due te the welastic demand for mony demerit gqoobs, such as alechal tht im)ace of taxes may 0k signibtcontly reduce level ol comametion. Alo, high taxation may mean inceeased Uhelyhood of unofhicial markets (black monkers), CF. Tr theony rhe tax revenue received by the government tan be useh te adbeess she impact ob demerit goods eng. ey bor greater clean-wp oh public areas @® Saosidven A subsidy is Whe a negarve malrect tan where producers or sellers ace paid funds by the government so thar ake price Will drop resulting ia an increare im Khe quantity demonded rewords the Socially optimum level bb “coks ue mytionPrree of puller cronig ort P| mse = mee Msc trubsidy DF erential wellore gaia (eld) > = potenti wellare gain (new Quantity ob aibhe cremmport The subsidy lomers the morker price trom Pa to Pe, increares the Level ob commametion ei qc te qa so that more ob the potential wallore gain te achieved. However, subsidies are 4 Unamcial bumden for governmentr ond for taxpayers, Monn government, especially if faced with a ering poguletieas oc Noadger debits , may bad Ib difficult te pay for sabsidven ank so are unable te beneltt from the porte etcemnaliics, assoctareh With mertt geods © Government Hiverrising Public Tabormarien Governments mag try to tnreare or decreaig demand (MPs) when there if an externality of concumption. In the case ob J merit goods or products which generate poritive externaliies of Lonsumpion goverament inbormarion, ete. will aim to shite the MPR curve re the Fight, so that Corsumpbion level merens€ towords the socially eetiaun level, Price ob tla Jabs mse C= mec) : D = ory, gorenttal wellere gata eb Pe R eae a ectesalthelteret aa bit Baanhirg of fla JabsFollowing 4 governmens informahion campatgn , the demrond for Plu jobs Was tacreased trom WP, bo mPBs. Alber this Change quentitg has [accented from qe to qe and the volue places on this produce war tncceased trom Pr to Pa. Dae to the tab. compatgn tere has been an increase tn welbece, The merker sftuation ty row clearer to We foctall, ephmum Level Government ‘Negative Mivertiniag’ mse ie Prise of agareties Pe ee fae ae Qusnty of clganedter Through negative advertising welfare loss Wie has been reduced trom the Vlue tangle to the ced triangle - Ceteris paribus, price woull decrease but the sovernmenr would Ibely Takervent using other merhos ws bring rhe price down NG Governments ore likely use « combination of methods te adver market failure, They may Combine methods whieh wil albert suppliers cosy whee wil hide tems WMAPC canes Leg, legrlakion , taves, Subsidies) with merhods designed bo allece Consumers’ demand and so ch the WMPB carve Leg legilarcon, gov. public take, era), The above analyses isolake rhe impact of 4 single polrey assuming ceren's perilous. blowever, usually more than one policy will be ased eg: fe redce consumption L cdyercttes governments re Ulely te wmbing public info. campalgn wir taxesion,Trodenble Permits (054d Governments may aront peemiss to firms allowing each of them to cause a tectain level of pollubion. ree inued the fiems Can teade the permits beween themseluer The “cleaner” producers cam sell pact of xheic “pollution quota” to rhe more yellting fiems. The impacr of thie Is that the less polluting Liems gata adbfttenal revenne whith can off cer some of theie private costs ab production They are able te sell ar a lewer price ond the quonniny demanded for their grobuck will vacrene The more polluting Ham will have to toa pollution quotas from other Gems which will raire Weir private Coste ob greduction jabing hem Les price competition will encourage theme re polluse less However, one cevtisism of rach methods is that the overall Level of gollution may ach fall unless pollution quotas fa goneval are gvadually seduced overtime. (ree py 147 for More gueluation espectally concerning Kyore Protecols between governments, in an Attermps €o reduce cttol Mere eoluing Kiron Leas wenllutias tiem mece (So 54/0 + mecr/Ss Po $27 MPC a ea % L abe A * r 1 1 MG/D, ll mew > > Raartity a Pas aetityTheecy of the Fiemy (Micro) 93/0843 Ai tiem (3 a anit ot production and an employer of resources / factors of produch'on, scarce The theon, =f rhe fim studies how few combine” rerources to provide geads and seqvicen ts Satisfy Consumers’ wants A tiem is ony producer or provider of good, and services, and ranger from sole traders to he lorgert multi-national fargoratiom (MNCs) ong may abs incade governments, The neorclamice! theow of the Liem eamiders the dectian making of firms fa four theorerical market strncences ~ Peclece Comperition Monspotireic Competeion Olizopely Measeoly Te & omumed thar He decirion making by firm will be grimerily determined by the celawombip lemween tiem! cor ol production and cevenme Cuwhich wi derermire erekis or on) "Short Ran ans “hoag Ran’ Tr economics, preduction is aisumed te cequire tatters of- production, len’, labour, capiral entecprise). A ditinction is made benveen che sbore-run ard the long-cun. Dhort-ran = period of time ia wake De bac coon ol produceion is fixed AU production takes plare ta the short-rus, 6.9. @ ceirawront may easily be able to very the quantity sh cow fook, fuel ond maybe laborer which ty umer ia He production procem in order 40 produce more or lem meab. There ere known oo Variable fac 3. Mowever, Ik may we len eany oF impossible oF ony point In Hue to increane oFNB decrease He size oh iby eremiver, Ie equigment (eg, ovens) or other forms ob cagital. There ace fenomn an dixed factors. The existence of ticed factors therelore restricts Phe scale ob production, a, max $0 meal /day con be served Long-eun = gered of Hoe in which All factors ob production ore vardable , but the trate of fecknoloyy b Axed. All glaaniay taken place in the leng-rem. eg if tes ammed thet the renkeavant can now increme the size ol te premisen, acauire extra equviement, eke. , then it ts amamed to be a long-run Situation. The loag-ran i therefore compored of a series of shork-rum Vienation, Ta the short-run tims cannot enter or leave an Wdustrg eg, mew ventaurant Opening (closing) - The rember ol Bem then indunery may o4ly very ta the leag-cen. The very leag-can - as for long ran, excegr thar new technology /incceanet ta Wumian Kuowledse can occur eg. the introduction eb microwave technology te the AdFOS dn the shark-ruan, firms’ cork a Production com be divided tate Heed tort: ond verialle corms. Tn the long-run all com ore variable The chronological length of the short-run will vary from industry fo induary according te Now emily the Lived factors of production tan be acquired and increased, £9. compore the eae ol increasing Hiped capital ber a vertamrant te +e elecevcity supply darcy (building a power rtatton)flcrage Product Marginal Product -end Tarel product Product ~ refers to the curpur ob = geod or seruce that « fiom produces wing th fixed and variable factors of production Totel Product (TR = the toral outpur of g0od1 and seruieer produced by a Hrm, with a given owount & Aastory ol production, over a period of time bg with « Certain amount cb capital, labour, Pow ford etc... a rerteunrant con produce ond Serve GO meals a day. On nereone in rerourcer waned ty Wkely te lead to an increane in TP. 25 arming © SR shuston where cogitel is fixed and labore is uavialle, a TP curve is likely ro Leek or shown below, Tosel Prabuct Cunisd) TR Univer db faleowe (veriable factor ok production) As more atts of labour are emypleged , vurpur will increme- Cemrrent rate, Trittally addivonal Lbowr iney bur wor ab 9 ob dower. Gis dug te edb more fo TP than farther Lacy che Comepts db jatceaaing cetacm ond dinab bing resurae Average Peduct (API- this is the amount produced on auerage per wet of the variable factor employed. APT where Vet ab unity of the veriable kuoe €-9: labour employed. e.g, when L usin db lebour are wed 40 mea a dayate pobuced, Px 42 * toAverage Prduct (ani Regraee ‘AP Usits ob Latour AP ob a varialle foeror [lobour) & likely fe rise ond then fall This wih be dug t the Mpical pattern fori marginal produce Merginal Product (MP) - Hre ekem rutpur produced from the tovployement of an ertca unit of the Vadable bactor mp =a eg ib total curgus increanen from 40 te Hunts q week fotowiay the cmmployement ob @ fourth uaib 4 labour, chen te MP = BB = 30 unin. The reltlombie Wereen avarage and margiacl values will alway bez ib the marginal Uolue ib greater thon He previous awerege then Une new awerage willl be hngher than pieuiourly Cb mp rnp TAP). TL the marginal value a len than rhe Preuioun Awerage, then He new eweroge will PE lower than reviourly (if me< Ap -- VAP) Diagrammattcoly, rhe situarion will look likes Produce (units) Be me Lg tain db baboue Ta the Gore ol ewermge ank marginal ioduce j marginal produce carve UW always coe the AP curve ar the AP carve > Wighest polar (in the core d average and warginch cost Curves, marginal corr will Always cur the Ad tue at he WC curves Loves point (hverse))Lebeowe ante wR Ae me NB oO 0 Be bass 4 420 Ave Ato 2 500 ASO 180 3 Soo 166-66 Zoo 4 hus 160 Abo 5 67s 435 35 ‘ 625 UZ.5 oO When plating margine Uslrer on s graph they should be yloued ar Hee nid -polntr becaume they reprenenr rhe chamge e255. The MP of & 3 urorker eumployed Lie. the difference berween the TP ot 3 worker and He TPoof 7 Wsekers) choull be pleged agaivs 2.5 workers.Def exercise (sherk ran sitmanton — therelene at leant one factor of production fs Ained) ake. The Law oh Voriabke Proportion Ge the rete of Variable + Aimed acters changer) : AAs addvonel unity ol 2 veriable factor are added ts a given quaeatity of @ biked factor, the ktm output Cmorginal produce) vob each odditvonal Varable factor will eveanraliy decline eg. 2 reptancant vith red capital equipment ewmplogs additional chefs, Guentually che extn # ch meals produced by employing a Men worker will be lem then the extra added by Fhe previows worker, (see Burger explarotion-e9 80, 81) Deven Py 34 % veriokle farees TP ae mot HA os eo ° o a HEE 1 5 5 5 @ AL 6 +t 3 1A + 3 4 32 a 4A 5 4s 8 18 ¢ 56 33 14 3 63 3 # i 6g 8s Ss 5 t2 g 4 4 ts LS 3 uM 45 6.64 o (et +3 6.0% ae dock ah He acompanys aropl version &Dimiatrhing merginal retacur te @ Varcble factor (e-y labour) occur When Marginal product of aa extra walk oF labour employed » len Han the merginel produce of te previous amt employed Outer AP No. dh units ab labour Awe ' ieee Tet net 1 i 1 ' a eed Up te the emplogamens of *K salts d labour, there ore increasing return to labour, ie marginal produce ab laloewur ts Fishing ~ Chen more than xq wnito ob labour are employed tere ere diincshing retoras fo labore, (2. marginal produce y falling NB- Total produce will be increaniag se lsag ar MP Us positive ie, wp te the empelogement at = unita ob labour, When More then % nits ob lebuur cre enrployged , MP becomes Mepatrive and TR will therefor fall Up te 5g untn db Labour being employed ,mP is greater Phen AP pherebere AP Sy rising, When mone Uren 9 oniis ore employed MPS AR thenefere AP is falling ~ Therelene MP=AP at AP'S highest value — Alter Hua empleyemens ob 4 Unrity ol Lebaur there are Umtnishing verege retortsCosy, Revenues and Relic 42/09/43 Costs Th economic analysis Colts ab productin com Le divided inte two Coseociea; = eeoncmic costs (opportunites coms) ~ accounting cots Coaiter corr) e) Secusasin corn The economic rt ol pioduciion cefer to the sppartumity cost ob Wing Rerourcer te produce « goed or seruice, Resowce coon (aka factor costs) can be divided ie fee coteseries; ~ explicit costa olten accounting costs) ~ implicit costs ) Gxplicte cory Thee ore Aina’ corm d production when the Lira hor to bay feraucce, which tt doer not already own, €.9. employig Worker and poring them cvager, buying Saw material, cagizal, ere... They involve A Aieck payment Tr aequine Ue cerourcen, Oppose cap presene ii) Eunteit tous These are when a em Wer Peources which it already owar bag Ler which there it en epportmity Lark ta qecmn ol eamniags foregone trom selling the cenourcer te atother prediter Og. a Pinm eds ib un prenses which ik ungp dec meling ity grabuces in, Ir dees nok have to pay cont fer the premises Wowever the yremisen could be venhed ts engiter dir der SOOOCHE/manch Therefore tle spporwrring tose the dire ening the premires Shell ib SOOO CHE rent imme bre gene. €9.2, a selb-emgloyed chet could Lave earned 700 CHE A month in Wielher aexr bore strane enplogenett, Thenefane, the apporteniey corr ol him/ner “emploging” WamelL/irer self i 7000 CHEFYm aaah wager Aera gone. Becawre ob itr dittiaceion betvecn acconnting (exgiick core ond (mglitn Cor, on accomntehs view ob « Hrm’s probity will be Llfecent) from an -econanmlita viewOR ee ao ) essen Gries eeegieteatiak taties AQ.000f ia Unger Ziel TRe $250,060 4109090 F caw woven Cis Boost pile reek rvease vorle 40,0005 gecstity Fyeoot perigle sheconte fe vowpteth ierenr tort gone S000 § inti Savenraaninplicn 2) 4 on actoventont = 480,000 = 480.000 = 270,000 accounting probie Gh Reonoamge © £59800 — 363,009 = 8,000 ecoacmir Bofit Bixed Cor ond Voriable Cor: Ta the SR pte where at lease 4 factor at producnien in freed ta cagely, trom wil ewe te pay fixed Lots and veriable cous Raed Comes UF) ane corks ob produce which de NOT very with eure ie they are the Cary ot pfodacrion whith «firm would BRU have fo Poy Ta He SR if ie wer produrcny Cero ettput. Vecteble Cosma (VC) are coms ol production thvch very directly wrk output, be. Shen bubpae riser ,vertable coy sive . Whey be & 0, varialle coms would atso be 0 eram~le — Mountain lstel * Restasronk Fiyek Carta _Veriable carts Tamrence Fret Rene Raw materials Marrrenence, feni-wschle) Wages Capital Teonsgort (reruieveciaihe) Palecy Blececictey loon repayments Woter {bork Rvertis ing GonTotol Coe (TA = Fered Com ¢ Voriable costs Gang ae Fe A urge NB FC ccewe ofl te He SR, became oh te mmmmupiion thee 4 the SR atten 1 tacter cd grducnion is txed In supply. Tr te LR a carte are vericlle Average for (fc) re ATC/AC = oukeur Fe ARE Cae Hon avec “ RopTC = AMC + REO Marginal Cost Lc} “Pe The cost oh producing an extra aalh ab ourpur Mar Three — Tess Pec ee ies me i até leg. To ob 29 unty - CHF 990 mMo~ 8 TCL wo um + UtF (000 MWeige = CHE 20) NB Mersin Valuer ove plowed at the mid-pomy cb the chenge A quamtiy. be ia he above exemple Ha mc ob de tooth uni Ba coe and so tk shoul be plowed ayaint an ourpih & 3%%,methine, , 400 f cack costars, LOSS exch Darton €9 G92 Workers Onmeue TEC ° ° 49 w us to Yo 405, AS Aw OH eee ens ate Me< 2Q 400 400 Koo hoo 400 boo 4.00 400 a00 400 p00 800 4900 1200 Woo 4600 TREC + AVE * ATO —fs FCS and RVC ~ AVC amd Feuer ond MC cm aces Te 490 400 5090 {009 1200 Auoo 400 A400 2000 wil decree as and MC are Baaiacsbony REC AWG ATO MG pec a ee eto: WO 2d 6 agg 16 46 32 10.00 £88 33 222 4.00 DA Wh Ah 40.00 hb AM 1585 ag33 39{ ANUS 2b 20.00 Due AIF BES KOC 433 ASS3 Age Dsentieg of - vertical distouce between between ATC output risen, ore. ‘ut Groped; dae 49 inci easing fekenorys RUC and ATC ar thu Lowent pointsReverses Reve calor fs rhe incame cecetved by a kiem trom the sale th ty produces Total Reverme {RY aka Tamover — fe the total amount ob income ceceived by a firm through the sale Ah in pmduun. Total Rev = Panik * no, sb uath sold TR=PKQ Average Reverme Lit) AR = os AR= Seid the Prgmch 6 conntank, then AIR will be rhe selltas pice. TL BR nok Contant, then AR will yal rhe auerage Selling grice. CAR ceben fo He amoudr received Ber wath by the seller at a penttculer bevel + saler How tuuch > geceived per unit will depend Upon comamecs’ willingtens ond abillty te poy . Therefore, tomumers’ D carves: wih be rhe Girm's AR Curve) ginal Revemme (MRD Ge. the 2xem revenue recetved by a Him, from the rele of one extra Unit ob ourput. MReos ~ TRice > TR va A MR - 3 @ When MR is gostecve, TR is rising Wren MR is negarive, TR is falling When MR =O, ER manmised “When MR=0 [TR G menimised), PED = O41 lunttarg) 4 [ealer to grog oveteal)tamed eselant @ AR +R MR if i if zo CS) Ay + 400 so Cr) w bo bo 1200 yo (ee) yo S50 So 4500 40 138) ho bo 40 {200 “tw ks) 50 30 30 5080s) © 20 129 oo “so Ges) 40 AO 4d Foo go 7 oe a EH Reston Ye) TR when sates’ ae 50 unite = 4500 f 2) 4 PED = 0.33 inclante WFR oben Ti Fo = too s YPEO > 16% clerte jue g AMR oF the otver prize s) eof sod MF -10 8 Lonoke DAR PED = Go a qcrteh TTR) PED = G) A Aevenue Us monimised snelanic # (YP > &TR) PED =O a a oyeeatitg DARRobie Or) Probie ty the rentdual when total Cait are subtracted tron fetal cevenne, Tol tr = TR -TC Polit margin i te svernge poh made per unite Sold, Probie margig = AR — AC Economists ditaguich between dillereat aypes ob profit; Abnocwnal / Econowic/ Aecountiny = Normal Tt Superacemal 1 Necmel tr Normal wocon be detned an the cost of enterprise ee the cork ob — emtergremtearrhig. Te is He minimum level of grote thar « dire needs & make i order Hs remain tr iy giesent Lane of Wusinen Te is te bevel ok profi hich ik could hove made ia ts next best alternmtive ine of bovine, ie. wormal prelit can be defined 0 He, opeor tie, corr ob Continuing current production Ge G& the amos of revere needed cover implicit Costs) Bea tem ib making only aormal proklt ine. Dlcerd cconomie (supecnormall grolte, then economic would seq thet rhe tiem, o Fe. ne economic loss or etovoure prakih. To acteuntann, a bow Maaking bly necmnod gekie will sell be profitable, oor noe This iy ome grehih made cove normal prekt, en a tirm makes an accounting T ol CHE 100.000 /year, making Seer) shoes Alkerwarively , te Lrm could Weve made Ce 70,006 accousttas yokts meyer ves altermativel making faehion shoes, Therebore, CHE * F000 = yormal TT and cle 3Q000 zccomomue Econmisig regard nonmal w ao the com ob enter prise Theredore, ang coir cucven drawn will tatorporate normal probe a a colt productionWhen a Kim isd & be Ureabitg een fh teonemicg, it mens Has che Girm's revemres equal the fim's cor, tacladiag normal yeolit, A Grea may be making aceoanriag evel va the short-run bur Regahve Cronemee grote A) Oureae Price Sammie ATC Probie Cancer 400 es qi Sg 200 fA 44s ra s00 Far $42 Lo 2) Ourpur Total Revere “Toral Cros Totel Profit 100 Sis0o {170 £ 560 220 £3400 4 3000 4 goo boa § 5600 4 3¢00 foMacher Steactuce Wodeh in the Neo-clemicol Theo ob Hae Eira. The Neo-clamieal hear of the Arm Categorises tien (producea) into different marker starcterrer, mainly bored upon the degree of this may be due to the number of Competitivenen ie the i duarny Heme ta Gee tadnoray , the ability ef wew Hema bb enter the Mbuntrg , the existence of rabsrituuees , eee Th ts porsible 49 celer t @ competttvenen Spectrum whitch gives an wadtcation of the level ob Campention withm the ditleremt tate ceruceunes, Pecteue (Meas eal Oligopoly Monogolistic Comperteten Comperiticn Mos | Leone swvail # of sellers Compete UC ideptteat er Ailerentiated cae % of sellers Componts've we lose. oo dillerenmated product Fugie sellec artiens eo emery eee Une product large amour ap — MYtew learriery to entry Vergy lord a aL ses iaposcile enten — Mecker ower Small amour ob meres Yeo oF Bae A ohaplene moresh ey. mobile phone power no bneriers te thy Tose wousorls ty Pettit Si eae eg. cating ia CH a sii ani Foreign tachonst 2: cikten A perbects compeneive morket is amumeb te be the most compentee mother sermcture . Ty ceakitg no morket wil be perfectly Lonmpertive bur, Some agriculturcA marlecis and He foreign Currendy onchange markeby Come close f© Mus txrrome model. Seen uvaption of perlece Competition: (Ps 192-103) A Firma ane shore-ram probit moanimisers lome for all neo-clemica morker struccuces), ie, oUrpue ser Where WC = WR b) Veny large number of buyers and seller. ie there is no marker power. Fin ore ‘price - taleers! AMM firms’ products are homogeneoun /identical . Comumens cantor there berween lillerent Him’ produce ie, no Uiflerentiarton A) No barriers te entiy oo erie. Fay Hrm can ever or leave on Indurcray. When probits tacremse , producers will enter Le marker and fice versa (ie the long - rem)2) Perleck mebility at renources vb a Hm cequiney wise ferourcer 48 grow A Peckect Knowledge — all stakeholders Kaow evenehing abour tre mock er JThece t rarenality omongyh reducer: ond comumen Ce Producers aim for mercaum yrolik Where a2 comumen Bim for marimam att libs, Eiice ond Ovrguc Detecnaination utter Reclect Comge titinn Rice Trdusersy Price Fic (cue) ‘Ss He) eee P, ~ — + 2} —_______ ovr mR . ° Sal 8 ~ Quentiy (milion of uniea) Quentyny Cuatts) Th omy Amerket, the price of the praduct ty ter by the interaction of Doma 5 for the produce. Fu «perfectly Couperiive mocket, every Rim is too small and too tasignificent to have amy influence oa the mecker price Each Piem is therefore a PRICE -TAKER. Tf the fim tied fe chorge a Wyber price thea the meker price, it would aot sel ony units, a2 all che other dirmy ave producing perfect SUBSTETUTES. TE & tiem unilarerally drops Thy felling price (withour there Weta, a fall in che AC in rhe Taduneny) then the Diem sould make a Ve and would leave te flunters ta the Lengerun, Ay a result therelare, each Qirm will Lace 4 pephectly elaarie D/AR carve for th product, Becauae PYAR ty constant fer rhe Liem me will have Hee come value. Thardore the me dare saperimyosed oq Hea AR curved a InP, wal Aone fore a Wik ia rhe Firms ARYMR curven will cca if there Th a a ta marker Condition, i.e. camning @ SWELL i tM morket Dor S carves— "4 —___. a (mR a CoS HEH ae eto — Din IMR, po *n Quentiity (uni fl c= One ob He amumprion ob he Nes -clanical theses db Hee tira iy thar alk fea are Sharh -run gokit mexiwis The poke mayimisiag level of surpid- occurs where MO= MR s Costs/ Revenues fi fivmR Quenditey mee MR mo>mMR Sees Serge eee ree ES Se ERR tk Total Tis the sum db the mMorginal 1 of every unit produced. To poke- marinate , a fin should produce oad sel every marginally wobitable unie amd MOT produce (sell amy marginrelty losa-aewtechy wads. Aliuming tha Swill expertence diniatthisy rehurer, re thad marginal costs Ore citing an ek geur Mikes, rhe firm shoul L podueat He surput bevel where MOIR der profi mabinithin, Therelere, tor prohit manimisaton (rh aay marker Shake, oolpur thoull be Jeb where Mi - MR Choaging mecker conditions will canne change In morker pricewhch Will change He ence end the prohit marimiring level ob oureet fr the few Te. * Flom, Price, Corl Revenues A te SEMnEENEL iA Hf ARIMAR 2 Rh eee eee eee ca ARMA t i { { argue (aillonl eel ee i te Oureut banin) A cise in marker price from Pi to Pa cairen the firms AR/MR cay Fram BRUNA te RR/MEL As cemtle ob on (acreased sellag erice, the quantity supglied by the bem will nyeare hom i tO ge The shift ch the Frm REIMER carve hon coamel & movement along He me carve. Price and oureus tor wee firm are determined by the interaction of He AR and MO crue, The AR uae tthe demend unre The uewacd M622 ol te me curve u the finns supply cane. Polit (Loss /Breob-even ander BC ia SR ems Tord w= TRO TC («+ ccnnoonte eohr) Lalenor oa Average TT = AR -AC Tuger-uraneh Unter perfect competition Firman coq mrake economic probe or losses ta Khe SR. However in the UR, due te an absence of barriers © entry add xr, there economic proliis / loses unll be competed cua and all Her will be ta LR equiliercam where thoy ore naling only rtormet profit, it. breaking even. Corl me Revemte a Leng-ewn Equiliveivn (Break-even /Making Re — AR/MmR cally asrmal ar) 1 ' i : - Oorgue qeThe diagram on He ster page Shows the LR cquilllerium posirion for Kos aw a erkecthy comperivive marker, The eauilbuivom price Pe is derermined by supply ent demand for He ndurtey > produce. Becaoe Here Sve Se mm firwn the induaray ach Brom ya price taker, and hem dy charge the morkce vice. Each rms D/AR corve is therefore yerlecty clarne ae Pee morker peice Pe. Therefore the AR curve by in the sone place o> Hm MR uve Became cach firm o arsuned fo be = profit maxiaizer, Tt wih SEE mutpir Were MC = MR, ae ge Ta LR eauilileriam Aen ds nok meke Ccomemte prollk and eharefere AC=AR fr the gohie maximisteg level cL cutpue ge Tes pemible be Hin bh make teonemie grobit or losrer in the SR A) change in marker conditions will thi Cither the supply uxve or the bemend emrve for the itlorry a = whele , rerultiay tn a Chenge ik mearlete erie and therefore a shite fa each firm's ARIMR cuvver. This will copalt in econome preb'o or Verses being meade in the CR bur, in Hee LR, He entry br exit ob Erm will Coturn the morket fo equilbnum , whee Aly — Aorwed polis are made UWeking Eeonovate T we dis eg ui Assume thar Hrere is a chonge ty morker conditfoms which cacsen the market price either on tnceeont tn demont or a reduction ta supply), Aisuming thor Firms! teit ob groduction do nok change, then bry will now be making economic woke. Ths is thewa overleaf* ecatemic prolit Ourgur The rae in morker erie mean thar phe ARMMR wrver art now above the fl wurve ar the profit marimicing level ob curpur gq. ImC= mR). Ae gi, BR 2 above AK and therelore economic polly canal rhe shaded orca a belay made by existiag Gran Ta te LR the absence of bareiem fe enery will mena thar new farms will enter the laduntny attracted toy He prospect cl making economie profile, The eatny of new Hews will iaceemre the marker supply of the product puch will lower the marker prcce and shift each Lirm’s BR/me curvern dowunwearky so reducing the economic potty made. (Re We some Hae, the Tnvemed mumber ob drm ta the iadwarny will laccense the demond for verourtes which racy ike each iem’s BC Curve Upward ) The merket with continue te adja until all Girmsy va rhe iabim ore making only aormal gotit Ubeeakiag- even} ond the tdi fy once mere Tm equibilerim where AC=AR ar he ambi meviadsity Level ob eutpur where WC-MK Short-cun diecuititrinm (Maki bones /-) fheernedrvely , a fall te merle price (rise mm supply or Fall ta demand) will thite che AR/MR cyver for exsring Kems downwerb ,venulting a lorie, ie, AR bem than AC ae the profie warenimisiay Sloss ariaiwriting bevel ob ourgut Were ML = MIR. corr] Rewer RS bess /neg. cron 7 AR AMR Oar Ae ge (ohare me=mR) AC 1 greater than AR se evieting fiown ore making a loss equad fe Me shaded area, Te the LR some Editing Few with leave Ure inbearay This ell reduce rhe nappy fe the tnturiny , pate Ure merker ervce , and chile the AR/ME are, fer remaining Kew apwardr LAC umeve wany abe shoe downumch ). This wilh contiame until pemaining Athan ove making nore probe ond the tabu tq ER eyu'lilriumAltemarive Atma db Flew LPs 99) Prokit wevimisarbn may aot swags ke the main aim ol Brow. Orrer potential almy inched ; Revemre manimiyan’on Th enterpremenrs menu cucen vy ere omacnt ol soles ceveanre, thoy wi produce where He MAR cero. The means Phar they wih produce aboke the pelt maniaiag level ol ulttpur Lic = MR) Growth — mand anisation Componien may aim to achieve grow ta the SR ltanead maintaining Potih) tn order te gain a lane market shove jo dovmmete Hee nnerkee th rhe LR. Growth is mearure d Hhrongh —quentity ol sales, salen revenue, -emplogment w thy percevtege oh the mmorker share Sax sficing Thy i Where on crocome egear CH) stn te pertore satisfactorily corer Haan fo 5 marimmm level, Ths moy be becoune xhey chore xo pure sthec goch Ueijare) er berome the achievement of 4 profip—morgminiay Stare does nor affer the workers har arc in the mona sequent , Ie. Mmongg emt ent y Aop-owner worker whose. Vues don't cheage bared oa Lheeher mornsmaim prot is achieved. Family Lire wey ferege undue sk te emruce thas the frm survive for later generation , and ener fore might aot aim fac PPE - marci mis otion lorporobe tociel ceagownibility csr) Where a burning includes Ce Ssocic/pablic intent’ th th decision making by tdopting aa ethical rerPotoabilly to Uy erironmentr and the conmmumiry I epermtey M. Thi wey Satlude educarvonsl aad fair-trade projec » reduction ob Necentel emrisstom ond Hae vac ol untenable eerurces 5 Lush advertites the fact het iy Joey nok crny war any Gnimal ebperimeniaeioneviery to oak Exit) (Mere A monoedly can ont) mabe economic profit ia rhe UR M it ty able t keep ner firm from ening iby marke, There are called barciem tm entwyy Sconomes ol Scoble Most monopolies , ar Phen are large firma, berthit fom economier ob sale in the form ol Lam=saulags and lower unit Gees. my ners Firm in 6 emacleet will Ubely Grace off smell md wet experence the benekitn of cenomits of scale, newly Nigher ante cowy. Without equal economies ob sole , a moropolit Gould simply reduce He price to the bevel ol nermel prob fe wempere away the new enlrowin, whe are dew meluiag ese acer cea ita acre cian Weraher et iectme erat he discourage ereies Inte a MonogolisHL mecker, Norurol Monog oly fin induntay iy a noturcl morogoly when there are ealy cnrowgh eronomien ob scale available ta te merit} to supgort A dim. Crnmyler helube UH serly be gar, water and eletrinity Th another firm went fe evtrer the market, demand would We taken Atom ere mronpelist , leaving oth Heme ia 9 Hikmaion whtre ik in imgossible ter them to make even normed tok, Legal Berries Ta cerkein simetionn, a Hem may ewe been given a legal Rghe be he only prokucer in an wduniny, Tatelbectred property Ggkks sre an -txnmele oh thy Where paren, Lepycights ond frademecks paretr certain seok/ideus trom cepicarion by ether Hew (lor approx. Zo years)- Another legal Warrier te -entmy mag be i «government seh mp 4 narionatises taduging — Lpose Yel and ann other Aiem Atom Brteing the lalwota | umurin, in monopoly poahion,Y Been Loyatey Th the brand lonely te @ Certeta wmorogoly ) new Airey may be gut ott from entering he marker, a» thoy feel eet they will nor be able He produce o godec sallretely niywe enough # generate such + reas brand legally S) Anti-compentrivie Beltaulour Ro manvgoltir ray aho attemgt to trop Lomperttton by sdopring cenrrickWve practices Llegel OR Wega). €3- an ortablshed monopaliit ie te a Strong perience sherk a Sete wen" following the entry ob © new tir Inte the tadannny The monopole com lower th ence bo bss mokiy loved and surtaian ir leas enongh & bankrupe fee commenter. Thi Anowlesge TS eitough © Ascourege new -entrewhn,Kor N Economien of scale ace decrensen te LR AC when Heme alter onomien of Scale all of their Lactors el production fo iacreare its ouput. Eesnomies al scale lead to firms exyerieming iaccemiag recuroy to scake. There ave different economies of sole that con beneht a Erm on thy outpuk iacremren. } Specialisarion Ta smah Bean, the labour is limited and cherelore hor to foke oa mony ferent Jobs/roles, leading ts higher unit costs Air Heme grow, the momasement con specialire ia individual area ol expertise, eg. production, rence ,merkeritg , and Hus beome wore eicient. Y Division ef Loleourr A breaking down cb rhe pmduction grocen iate small activitien, qhat workers can perform cepentedin and elfcienhy, ceducen tein Unie core. 2-5. cars and television 52 on a conveyer belt J Bulk brying, A larger fem con resoriate discounts with their suppliers . The cor dk their Wpar iv the reduced , renullg tn a reduction fs their unit cont ab production. Loney Lore Kram con code Financiod capital Cmoneu] more cheaply Hon small firms an laoake unnally Clerge a lower iatecerr on their lower to large Hrws This is becoure larger flew ene comi dered “h flee ck os rik and ace ber likely to fail to rege weir Lomas, 2) Teampork eoromien Large ims moleing bulk oder Way be charged for delivery Simtlorly , @ Large rw may hove is owa draasporr Heet, bicaging down Hee Cost al delivery Kgni frcomblyy H\ Lorse machines Some, machinery 16 tho lenge to be sumed by a small Aim. orger firms con have large machinery, cebucins HReirwate cCostS sh production, <5. « combine berverter tn a small form tompored te a large tom. 9) Promotional €csromies, Almost oll Grn promote their producis Hhrough abverhise- ments, The coity ol production promotion tend not fs Increane by He same proportion an otupum. ie i a fem double Hy curpur, & is aalkely Phat (io promotional casty WL alse be doubled. Thun the Coie ol gremotton per umik of ourpur Balla. There are similar Seenarioue with other xed corte, cg inrurence | Seaarihy, 2) Diseronomics of Sale ore any frcrenses ta LR AC thet come about alien all factors of produtrion to incre oUrpUL Diseconomicn ob scate lead to He Hem exper enans decreening return ts yale 0) Control and Communtcerten Problems Ara Gem groun in gale, phe meragement wil find ik mone difictle fo Lontrcl amd coordinare the activites ob He firm, leadtag © Merearey ty all Costs of production and trelficceney. There wih be 4 similar problem arisjay with whe Lifficulty cb commumteanon te 6 Large Hem, abe leading te em thereane in wnt coma of productvon \) Mlenorion and bess of idenbity Tr & guggerted that Wenagers and Workers may Heel carigal ina leege Frm ond bese mMetvarion te be efficiene , beadiny fe aa creme tA unit costs ob production. Ths is due Hg bo in the senses oh belonging and legatiy commed boy hetng 1 a Very bly orgeaisettan Trveraat eronomier/diseconmin db scale = irene in Mem site Crceraals eo "= tnereane in caduntny Size-2adtocst Price Userimiaation 6 the practice of charging different prices © diferent comumer groups the some product, Where the price Lillerence is noe dukes by Lillerences in cost. Ta wider for a producer to Le able lo price ditrimiacte, three conditions are necenery; a\ The producer mwar hove some price “seting abilleg , he. the merker warns We ingerbece Lmorty found in mensysty or oligepely market} DB) The wmmer numt hove been TED, for the gredecr, Ge. contumen, with Arelaric demend ould be williag fe pag mere for a reduce, The Lym mnt be able % separate commer gronps fo emure thet wo resale cl the produce con ouur. TE net , low price commen coals sell He product re high price Comumen at a pice lower then chek ab che birm Producers con separate meters in Ltbereme wars ; A Time - tomumer are willing © pag higher prices of certala Hamer for the some good /ervice. Commuters! bemand fer tronayertarion ie tem elastic ducing cash hour ftom work. Therelore, Krams con Rorge 4 Wigher price & Hhene Lome, th Age - chien ore oben lower prices on Khe Wave tone tlt. dewrend due te their lower momen Gender - women ond men may be Uberged éllerently 63. 4 forsloe Ulan clurges len for denmale supgarier, o they believe tenses’ Lemend js mere tlre tompwed & mea 4 Trome weekday clieris of a lawyer mag be charged more ter legal Services hen poster Lue a, Heir demand will be reletively, eben. 5) Geographical datmnce ~ Firms obten sell produas cr Atberent prices in SBlferemr Necerttonn, This foal pentible UL the price ia reoasfetriay Ake produtk 1 greater then the difference tn Hee prices,8) Types ab comumer — Firms com sell at Ulberent prices to Kleven Uners, 2.5, dlectricity compenicn way clurge, diferemt prices -® iabuatriah tnecr vers domenne mers ween we sinatton A) Fese-deqree price discrimination = each commer pags exactly the pice thar he Ws gregeed fo pay £9, rradem in 4 bazaae where sellers bargain to cell oF the leighent price han ther former fy willing pay. 8) Second -Aegeee price ditceiutaeninn = 4 kim charges deflerenr pices to lemmmers depending wpoq how wach they purchunre, Using comeenien urn hy clnmpe ¢ brigher price for the Firse feu unt and then lower pice for any marginal commninghin Gd TWd = degree price diwiminntion = tomumer ere thentiteed in diherene wrerker fegmen , and 2 cegerate pice is cherged tach merker seomene , recognising Hie ferent peice elerneitien in each ahthe Segmenes, Senden Tickers Adele Teeery Total Ticken 2 7 AR P) Queer Ar le poke wranimisiay level ol cureut , qr(where aac sma), AR & greater than atc. The rm cherges price Pr per umb IRR) amd Phe AC ob productin i Se Total eronomic To ts thenebene shows ley re shaded oven.Unlike ander PC or Moaspebiinc Compeneron [where there ave yo barrens to entry/enit) 2 Modopoly con Lomriame de me he Zcon.T sa Khe LR due te berriers © entry which beep Potente — entvetth out a the merker, A loss making monspolire ine tree marleet will 50 bankrupe/ leave the iAbwamy A he LR mo ie ie mekity lem then pormal i end other merkeh ster better chance do making econ, T To roman te Phe morker while malting a loss, the menaporite oll sauelty Reet to be subsided by the governments oF Monuaalired e.5 gnney governments subsitive railovey servicen aC a AC eat WAL. = econ loss -#) B® gy LT manimistas Clos minimising level ef oareuc ~ ME=MR), AO> AR loses = shaded areaAono Morsesiiing Comperinion (like Oliegolg) i < form al imperteen tsmpenitea fe. Sa Hee cles Chere Ss mare rhea one Aiem coanpering wir each offer tor Comumen fe lay thei qrokuce » but The competion Gy nok ‘perfect’ Checacterittves /Asuetion The amumypnion are largely simtler t© Hose ol ferfece Compert'on ie. bersge wumber of Erwin , no lencriem te entry /exit, [neor) perlece lenowledge hwever , pedir 14 = meagpoluricly comperitve merlker ore nor homogenous, although Hhey aull be very similar, Zack Firm's products ore diferentinted from thors al lh tomvperitors. They mean shat — conmumerd are able te xpren a prleronce f& vse Rely product compared 0 Hr of another fem, bur cach Kms prabucts ore (lose substitutes Br each ether ond therefore femond will oe very Clashilbur work perfect, tbone) 5 rertamrowte Cadustag tA @ alk; hairdremtag ete. Product dilberewttation con be ol two vrata Jory real and arithicial. Red diffjeremtieron Le. a difference /verintion between the cumal tagredionm , plugsical characteristey se type ob service for whe product Avom errducer “eller te another, 5, Jenene type /guatiy ob food , dilkerene silly ob a lnsicdeener Rewbiciel Sferentianian — he ure ab adverttitng , borendy , packaging , +o moke the proluct tppear ditfereus te compunens. €9 botthed water Piice ont outpur decerm and DAR wrve will be dasaward sloping lat ven elerti. Becowe SL produce Mierentionton, compumers con exprem rational prederence foc one firm's product (unlike under PC whereproducts ase Womosetouio) but other Gran IA Bue mecher ove Kapplyiag very close subs timate. Become ban cbyence of Sigiicord berdiens to eutay Len ent) [lew caqnot make econnmic nthe LR cad wih only make narmal profits ip Decal /Ourgur 7 Ouveme b fee ak qe, where Me = WAR Price & determined by AR arrve at qy @) ~ @ ay, AC=AR 6 no economic 7s Conly wormeal Ts) SR_Direauililoriown aking econ T Cony Cons/ ye fa Ry seat t AR \ 1 me ' a Du gine v — @ a tama ARP AC ~ Bay (nceme) Ac >Re Peon T ace made in §R Seley mabe Te whe SR — Ta lR, new Aran eater mecker ~Ta LR, seme firms Weaue lao barriers to xi) lie Warrier bo entey), aad Cem tly aal lesser for cemaising firms ace competed ore Competes Mery (AR Pelt) aus Crewainiay Firms! AR cucves > cignt)Aigagnty, (From che greek oligos meaning a how) Olisepaty hw form al Aanparhece comperitvan 09 thene are more Hhan one Hm in a merker bur he competition iy nol perhece Chacacterarres The marker uv dominated by 9 fou firm» There may be mony Kvn in Hee induatty but te merker shove tl a dew of them will be rigerKeant, and large enough to ublueace the merkee eg we rhe US the sobt Sriky taduntny contain Wundred ob Bim but the merker iy dominated by too Herne Cate Cale oak Pepi co, (duogsly), The merker shee and therelere, the degree cb merker yower com be illustrated by the use uf Comcentroawe, rahios (CRs. 5 amume ther the table Gelow shows the merker clece af different run in an inden wih 25 finwn Firms 23 Fim 2 Aq Skin cone colle Ra = S Hof, Fiem 3 te 4 Few cone, Cation CRO> GF % Fem & to Fin 5-25 434 400 % A problem ich (Ri uae) is hak, Without « breakdoun of He individasl emarkcr theres, the coatemration ol merker power 1+ te Wovlle sb ane or two rw iy not cheer. The herkiadehl - Herschmona deey ake thir Wie account. Strong \verriem m envy, therelore eccotomic prohin com be made in the ER, Paberdependence between Laws When there are only a few fires which Lemrinmbe a moteet, the: action of any one fiom all alee all the other firmand vice versa. This tr a spesitic cheracterci ate > allge poly (unige). Tr ond woncgrlatic compenieion there ere Fe aoa cher Hewes thot the < pure monepoly there ore ne other filmy, Tr perfece aicons qd otuy one Lirm ore insignificant, For econounre omatyire ob the Imgace ol interdependence fee later uster on Kiked Demend Curve Heeory oh Game Theary Product dilferentionion Olryotier’c merken ore characterised by Hrs making extenniee re th noncyrice competition €.g. 0)