ECONOMICS FOR MANAGERS

PSG INSTITUTE OF MANAGEMENT MBA 2011-13 BATCH - I TRIMESTER SESSION III- FOR BATCH C AND D

Concept of Market
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MARKET is a place or a situation where

potential buyers and potential sellers of a good or a service come together for the purpose of exchange. Egsthe Vadavalli Sunday vegetable market, Uzhavar Sandhai, Pushkar Camel market, the Coonoor Tea market, the Mumbai Bullion market, village market in Bastar Tribal district MPthe international Coffee, Rubber, Cocoa markets.the market through Internet- ebay, Amazon, Olx, BookMyShow.
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EFM Faculty P.Uday Shankar

EFM Faculty P.Uday Shankar

22nd Aug 2011

EFM Faculty P.Uday Shankar

22nd Aug 2011

EFM Faculty P.Uday Shankar

22nd Aug 2011

EFM Faculty P.Uday Shankar

22nd Aug 2011

Market Structures
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Perfect Competition Monopoly

Monopolistic Competition
Oligopoly

EFM Faculty P.Uday Shankar

22nd Aug 2011

Market Structures
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Perfect Competition Market Structure: It is a

theoretical market structure in which no supplier has an advantage over another. (BEE) Perfect Competition Market Structure: In this structure a large number of relatively small firms sell an undifferentiated product in a market with no barriers to the entry of new firms.

EFM Faculty P.Uday Shankar

22nd Aug 2011

Perfect Competition Market Structure

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Characteristics of a Perfect Competition: There are a large number of buyers and sellers in the market. Managers of the firms are price takers as they would be

unable to influence the market price individually. Producers and consumers act rationally and have the same information. The product is homogeneous. There is free entry and exit of firms in the market. Profits of firms in the market will diminish as and when new firms enter the market. Egs markets for agricultural goods and commodities traded on national and international exchanges match with Perfect Competition market Structure.
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EFM Faculty P.Uday Shankar

Monopoly Market Structure

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Monopoly Market Structure is one in which a

single firm, protected by some kind of barrier to entry, produces a product for which no close substitutes are available. (Thomas and Maurice) Monopoly Market Structure is one in which there is only one firm as the sole producer of a good or service which has no closely competing substitutes. (BE-E) EgLIC of India was a monoploy till private companies came into India
EFM Faculty P.Uday Shankar

22nd Aug 2011

Monopolistic Competition Market Structure 11

Monopolistic Competition Market Structure

is one in which a large number of firms that are small, relative to the total size of the market, produce differentiated products without the protection of barriers to entry.( Thomas & Maurice) A typical example is of the tooth paste market. The many brands and kinds of toothpastes are close but not perfect substitutes.

EFM Faculty P.Uday Shankar

22nd Aug 2011

Monopoly on Populism !!
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22nd Aug 2011

Oligopoly Market Structure

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Oligopoly Market Structure is one in which

just a few firms produce most or all of the market output , so that any one firms pricing policy will have a significant effect on the sales of other firms in the market. (Thomas & Maurice) Oligopoly is a market structure where a few large suppliers dominate. (BE-E) Eg.The oil cartel is a typical eg of oligopoly.

EFM Faculty P.Uday Shankar

22nd Aug 2011

The public world over held at ransom by oil cartel

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EFM Faculty P.Uday Shankar

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DEMAND
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Demand for a good is the quantity of that

good which potential purchasers would buy, if the price of the good were at a certain level. ( BE-E)

Quantity Demanded is that amount of

a good or a service that consumers in a market are willing and able to purchase during a given period of time. (Thomas & Maurice)
EFM Faculty P.Uday Shankar

22nd Aug 2011

Demand Functions
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GENERALISED DEMAND FUNCTION:

This function shows how quantity demanded is related to product price and FIVE other factors that affect demand. ORDINARY DEMAND FUNCTION: This function shows the relationship between quantity demanded and the price of the product when all other variables affecting demand are held constant at specific values.
( Ceteris paribus condition when all other variables affecting demand are held constant)
EFM Faculty P.Uday Shankar

22nd Aug 2011

GENERALISED DEMAND FUNCTION

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The six principle variables that influence the quantity demanded of a good or a service are: 1. Price of the Good or the Service 2. Incomes of Consumers 3. Prices of Related Goods and Services 4. Tastes or Preference Patterns of Consumers 5. Expected Price of the Product in Future Periods 6. Number of Consumers in the Market
EFM Faculty P.Uday Shankar

22nd Aug 2011

Generalised Demand Function Formula

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Qd = f(P,M,PR, T,Pe,N)
Where f means is a function of or depends on
Qd= Quantity demanded of the good or the service P= price of the good or the service M= consumers income (generally per capita) PR= price of related goods and services T= taste patterns of consumers Pe= expected price of the good in future market N= number of consumers in the market

EFM Faculty P.Uday Shankar

22nd Aug 2011

Categories of Goods on the basis of Demand

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Ceteris paribus .change in income

Normal Good: A good or service for which an increase in income causes consumers to demand more of the good or service. Inferior Good: A good or service for which a decrease in income causes consumers to demand less of the good or service.

EFM Faculty P.Uday Shankar

22nd Aug 2011

Categories of Goods on the basis of Demand

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Ceteris paribus .price of related goods

Substitute products: Goods are substitutes if one good is used in the place of the other. If two goods are substitutes , the increase in the price of one will increase the demand for the other good. Eg.tea and coffeechicken and meat. Pepsi and coke Complement products: Goods are complements when used in conjunction with each other. If two goods are complements , the increase in the price of one will decrease the demand for the other good. Egs cups and saucers, bread and butter,
EFM Faculty P.Uday Shankar

22nd Aug 2011

Demand Curve
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Problem to be worked on board.

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22nd Aug 2011

Thanks
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EFM Faculty P.Uday Shankar

22nd Aug 2011