BASIC MICROECONOMICS Y QUANTITY= HORIZONTAL LINE
MIDTERM REVIEWER THREE WAYS TO DETERMINE
EQUILIBRIUM
QUANTITYSUPPLIED- Describes
the number of goods or services that 1. SCHEDULE
suppliers will produce and sell at a 2. GRAPH
given market price. 3. ALGEBRAIC- QD=QS
QUANTITY DEMAND- the total
EXAMPLE: #1
amount of goods and services that
consumers need or want and are SUPPOSE THE MARKET DEMAND
willing to pay for over a given time. EQUATION AND MARKET SUPPLY
SHORTAGE-a condition where the EQUATION FOR A COMMODITY ARE
quantity demanded is greater than GIVEN AS QD=200-5P QS=5P
the quantity supplied at the market
price. ( lack of supply ) QD=200-5P QS=5P
SURPLUS- the amount of an asset
1. QD=200-5P=5P + 5P
or resource that exceeds the portion
that is utilized. ( over supply ) QD= 200= 10P
PRICE CEILING- the mandated
maximum amount a seller is allowed 10 P
to charge for a product or service.
= 20= P [ QUANTITY PRICE]
Protect consumer
2. QD=200-5P
PRICE FLOOR-a minimum price
imposed by a government or =200-5(20)
agency, for a particular product or
=200-100
service
Protect supplier =100 { QUANTITY DEMAND}
MARKET EQUILIBRIUM- a market state 3. QS=5P
where the supply in the market is equal to =5(20)
the demand in the market. The equilibrium = 100 { QUANTITY SUPPLY }
price is the price of a good or service when
the supply of it is equal to the demand for it
in the market. EXAMPLE: #2
equal in the middle Given: QD = 15-2P
meeting of consumers demand and QS= -25 + 8P
producer supply.
inverse relation on market demand FORMULA: QD = QS
and supply
1. QD = 15-2P=-25 + 8P
X PRICE = VERTICAL LINE
= 15 + 25= 8P + 2P 2 MAJOR BUSINESS
STRUCTURE/MARKETS
= 40=10P
2. TERMS TO REMEMBER;
10 P 1. MARKET STRUCTURE- The
way is organized in terms of the
= 4 P { PRICE }
number of competing firms in the
2. QD = 15-2P same industry.
= 15- 2 (4) Understand the number of sellers
= 15-8
= 7 { DEMAND } 2. INDUSTRY – a group of
businesses that produce or sell
3. QS = -25 + 8P identical product or service.
= -25 + 8 (4)
=-25 + 32 4 TYPES OF MARKET
= 7 { SUPPLY } STRUCTURE
1. PERFECT COMPETITION- It
FORMULA TO KNOW THE SHORTAGE refers to the market in which
OR SURPLUS there are many firms selling a
certain homogeneous product.
SUBTRACT THE ANSWER OF QD
The price is determined by the
FROM QS
market forces of supply and
EXAMPLE: #3 demand.
Ex: wet market
1. QD = 15-2P Customer relationship, loyalty,
= 15 – 2 (3.50) satisfaction ( suki ) in order to earn.
= 15-7
= 8 2. MONOPOLY- A monopoly is a
form of market in which there is
QS = -25 + 8 (3.50) only one seller of a product with
= -25 + 28 no close substitutes. It means
=3 there no direct competitors of the
selling firm of market.
QD= QS Ex: Meralco and Grab
8-3
= 5 Shortage 3. OLIGOPOLY- is a market
structure in which there are a
few sellers and a large number
of buyers for a commodity. In
QD = Shortage
this, The sellers offer
QS = Surplus homogeneous or differentiated
products by recognizing their
PERFECT COMPETITION AND mutual dependence.
MONOPOLY EX: Globe, Smart, TNT, Sun, Tm
Firms can easily the industry and at
4. MONOPOLISTIC the same time they can also freely
COMPETITION- is a form of leave the industry.
market in which there are many
buyers and sellers of the product MONOPOLY
but the product with each seller
is different from the others. The exclusive possession or control of
supply or trade in a commodity or service.
Ex: Products of Pepsi VS. CHARACTERISTICS OF MONOPOLY
Product of Coca cola
Monopoly is a one-firm industry.
A monopoly remains the only seller
CHARACTERISTICS PERFECT in its market because other firms
COMPETITION cannot enter the market and
Sells product at identical market compete with it. Those factors that
price prevent other firms from entering an
Sellers and Buyers initiate the industry are collectively called
buying and selling mechanism barriers to entry.
No restriction A monopolist is a price maker, that
Absence of direct competition is a seller with the ability to control to
some degree the price of the product
The actions taken by individual firm itself.
to pursue its own interest will have a The relatively higher price a charged
negligible effect in the market such by a monopolist creates distortion
that no single firm can influence called deadweight loss which is
market price. associated with the fact that higher
prices discourage consumption by
Therefore, buyers and sellers are people whose value of a good
price takers, in which each one of exceeds its social cost of production.
them accepts the price that markets Rent-seeking behavior tendency to
determine. preserve profit. Because of the
absence of competition, there is an
Because the product being are incentive for a monopolist to
sold are identical, the seller has no preserve profit.
reason to price his/her product This behavior consumes resources
differently as compared with other and leads to government failure
sellers in the market. becomes the tool of the rent seeker
and the allocation of resources is
If a seller increases his price, then made even less efficient than before.
buyers will have to buy somewhere A monopolist may charge different
else because the product are prices to different groups of
essentially the same. consumers even if it is not justified
by cost differences. This practice is
called price discrimination.
The prevalence of price discrimination relatively higher average total
can be readily observed. cost.
1. Meralco charges different
electricity rates for residential
and industrial used.
2. Senior citizen discounts,
students discounts to
transportation and entry to
theme parks and museums.
Price Discrimination
Charging each customer in a single
market the maximum price she or he
is willing to pay.
Charging each customer one price
for the first set of units purchased
and lower price for subsequent units
purchased.
Charging some customers one price
and other customers another price.
BARRIERS TO ENTRY OF
MONOPOLY
Ownership of a key resource
Potential entrant to an industry
may face barriers with respect to
access to essential resources to
produce a product.
Government Regulation
Laws and/ or policies of the
government can create a
monopoly by excluding or
preventing others to produce the
same product or service.
Production Process
Sometimes the market is better
left with just one producer when
that company can obtain
economies of scale at a larger
volume of output instead of
multiple firms competing when
each one can produce at a
