Monopolistic Competition

MONOPOLISTIC COMPETITION 

Monopolistic competition is a form of imperfect competition where by all firms produce similar yet not perfectly sustainable products. 

Monopolistic competition has large number of sellers

which means they only need small market shares to develop the business. 

Collusion in monopolistic competition does not exist hence illegal cooperation and conspiracy is nothing to worry about in monopolistic competition. 

Monopolistic competition is an independent form of business 

hence it’s easy way in and easy way out. 

The examples of monopolistic competition are, fish market, hawker stalls and so on.

Perfect competition is a hypothetical market structure. 

It is used as a benchmark against which other market structures are compared. 

The industry which is likely related to perfect competition is the agricultural industry. 

All firms in perfect competition produces identical product. 

Each individual firm assumed to be a price taker. To compare monopolistic competition and perfect competition, 

perfect competition are able to achieve productive efficiency, 

where monopolistic competition are not able to achieve productive efficiency. 

In conclusion, monopolistic competition is suitable for a small market because they are able to control the price of the market. Perfect competition could not control the price of a small market because they are not able to influence the price of the products in the market. 

Written by : Harith Chua 

Television

TELEVISION 

Television brand will cause economic problem when the economy changes. 

The television brand like the LCD-TV could cause that relates to the demand and supply is elasticity. 

It could cause economic problem with the price increase in new models. 

The elasticity is the measurement to study on the changing of an economic variable that 

will affect others like the supplier sell his product at a low price, 

how much more he must sell or sell at the high price, 

how much less he must sell.

The demand side had the price elasticity of demand is a 

units free measure of responsiveness of 

the quantity demanded of a good to a change of price 

when others buying plans are the same. 

There are three types of elasticity demand

• perfectly inelastic demand
• unit elastic demand
• perfectly elastic demand.

For television brand

it is a perfectly inelastic demand and elastic demand

the concept means that there are no changes in the quantities even as 

the price increases or decreases also had no price range. 

Example, the Samsung LCD-TV is a one of a kind smart television that 

had voice control and touch screen and no matter if the price increase or decrease next year

the quantity will never change no matter how many time the consumer buy.

The graph shows how the perfectly inelastic demand works and like if the price of the television had increase to the prize of twenty, the quantity will remain at four units.This had shows that the elasticity of demand is zero.

The graph shows how the unit elastic demand works, it shows that change in the quantity demanded is equal to percentage changes in the price. Like, the quantity is drop to the two units, it causes by the change of the price. The price elasticity is equal to one.

There are factors that influence the elasticity of demand could cause economic problem. There is the factor of the closes of substitutes mean that the product that had a closet substitute the more elastic the demand could be. This means that if there is a substitute for a product, people will demand it more.

[ sources : http://www.isuppli.com/Display-Materials-and-Systems/News/Pages/LCD-TV-Prices-Increase-as-New-Models-Arrive-and-Promotions-Fade.aspx ] 

Written by : Teh Li Wei 

Petrol Market

PETROL MARKET 














Elasticity is mean ‘the extent of reaction’ of prices. In economics, it refers to a variable (quantity demand of goods or quantity supply of goods) on another variable (prices of goods or customer income) changes in the response. It is usually the percentage change in the two variables.

• Why the prices of daily necessities decreases, the quantity demand will increases?

It’s because the prices must be from goods after the change
the quantity demand will change in the purchase of consumer 
response sensitivity of up analysis. 

Formula : Price Elasticity of Demand

Ed = Change in Quantity  / Sum of Quantities divided by 2 

       * Change in Price  / Sum of Prices divided by 2 

              

Inelastic VS Elastic

1. As we say a good is price inelastic, when an increase in price causes a smaller % fall in demand.

Example, 

if price of petrol falls 30%, but demand for petrol only increases 10%  the PED (Price elasticity Demand) = - 0.33

Petrol has few alternatives because people with a car
need to buy petrol. 
For many driving is a necessity. 
There are weak substitutes, such as train, walking and the bus. 
But generally, if the price of petrol goes up, demand proves very inelastic.

1. Or we say a good is price elastic when an increase in prices causes a bigger % fall in demand.  

Example, 

if price falls 20% and demand increases 80%, the PED (Price elasticity Demand) = -4.0

Shell petrol. 

We say that petrol is overall inelastic. 
But, if an individual petrol station increases price, 
people will buy from other petrol stations. The only exception is if a petrol station 
has a local monopoly 
e.g., at service station on the motorway there is a captive audience. 
But, in a city center with many alternatives, 
people will have an elastic demand.

[ sources : http://www.economicshelp.org/blog/497/economics/elasticity-in-the-petrol-market/ ] 

Writen by : Teh Li Wei 

A Firm who producing Tires for Cars

A FIRM WHO PRODUCE TIRES FOR CARS 

A tire is important to a car. 
It plays an important role when a driver driving a car. 
A good quality tire has a higher quantity demand 
In order to let drive more safety on the road. 

So, a firm who produce tires for cars 
need a large number of workers 
or a small number of workers when producing tires? 

• HOW IF THIS FIRM HAS A SMALL NUMBER OF WORKERS ?

This firm will has a fixed number of machineries. If only 2 or 3 workers are hired by this firm, then the total output will be very low. Because they will have to do many different jobs and advantages of specialization will not be occur. The workers will lose many time for just switching from one job to another. Thus, the machines also will need to stay a lot of time idle. 

So, this firm will be produce underproduction of goods if this firm has a small numbers of workers. 

If the firm hired many workers

the production will be more efficient 

marginal product (MP)  will rise too. 

• HOW IF THE FIRM HAS A LARGE NUMBER OF WORKERS ?

When more and more workers added, this firm will be overcrowded. Workers have to wait to use the machineries. Total output will increase at a diminishing rate, because when have a fixed-size firm, each additional worker will have less additional capital to work with, as more worker is hired.

Law of diminishing returns in this firm, states that when an additional workers are added to additional machineries, the marginal product of the workers will declines when it beyond a point. 

[ sources :  http://www.scribd.com/doc/68578646/Pirayoff-R-CliffsAP-Economics-Micro-Macro-Wiley-2004-ISBN-076453999X-268s-GG ]

[ sources : http://tutor2u.net/economics/revision-notes/a2-micro-shortrun-longrun-production.html ]

[ sources : http://justdan93.wordpress.com/tag/short-run-production-relationship/ ]

Writen by : Sia Shi Min 

FaceBook

FACEBOOK 

Legal authorities in the United States and elsewhere have inspected them mainly when they have pushed into market to the fringes of their own business. As a Facebook's attempt to avoid other software from adding its own system or Google's use of its search engine to influence consumers' purchasing choice. 

Google is different from Facebook and eBay. 

The worth of Google's search engine depends only 
indirectly on how many people are using it. 
For Facebook and eBay
the network of the other users is of central importance
can guarantee customer's loyalty
even when they feel ignored. 

A simple motive for the firms' free pass may be that they charge very little or nothing for their services and indeed, one of economists' primary concerns about leading firms is that they will score consumers, or at least raise prices in a way that pushes some buyers out of the market. 

But economists also worry that a leading firm will straight barriers to keep other companies out of its main market. Like Facebook, eBay has a huge network of registered users, but it does charge for its services. 

"With no rivalry and barriers to entry

the free monopolist has no market power

or monopoly price-setting capability. 

If there were no barrier to entry

a monopolist earning optimistic financial profits 

would be history and this era would be done. "

As a firm grows superior in the long run, average total costs decrease, providing the larger firm a cost advantage over smaller firms . If extensive economies of scale exist, an industry could change into one another with only one huge producer.


[ sources : http://www.foreignpolicy.com/articles/2013/01/07/the_new_monopolies ]
[ pictures : http://tuvaro.com/ws/facebook+/images ]


Written by : Lim Wan Zhen 

A Small Market

SMALL MARKET 

A small market like fish market 
independent selling many differentiated products.

For example, fish market sells many different type of fish.
Although it have many types but they also consist as fish. 

" WHAT IS THE MARKET STRUCTURE OF A SMALL MARKET ? "

The small market like fish market is

monopolistic competition. It is easily make us 

imagine that is perfect competition .

• Why say so ?

Because not only monopolistic competition, in perfect competition, a small market sells and produces many convenience goods which we need it and it is important in our daily life. Although it is alike as perfect competition but it is not !

The small market is a market 

which is consist a large number of sellers.

So, for the new firms in market, 
they can easily entry and exit in the market,
because involves many sellers in the market. 

       

Many !!!

Many !!! 

The small market can control the price of the differentiated goods they sell, the price can't be too high or too low, yet it is enough to attract consumers attention. It is because in monopolistic competition, a small market is a price maker.

In perfect competition, a small market would become a price taker ! 

• So, do small market like fish market continue to be a monopolistic competition in the market or change to perfect competition? 

If a small market is monopolistic competition, 
it can advertise the differentiated products competitively. 
It also can control the price instead of 
put the price of the products in higher or lower price. 
It bring a huge benefits to consumers not to worry 
about when the price will increase or decrease one day !

But if a small market is perfect competition, 
it cant control the price because they are no 
ability to influence the price of the products in the market.


So, monopolistic competition is suitable to continue to be used for a small market ! 

[ sources : http://tutor2u.net/economics/content/topics/competition/competition.htm ]
[ Graph : http://tuvaro.com/ws/?q=fairly+elastic+graph++%2Fimages ]


Written by : Sia Shi Min 

Coffee

COFFEE
















can affect the economy world 
and had already caused economic problem 
to both the buyers and suppliers. 
These economic problems come from 
the concept of the demand and supply
that are related to the coffee. 
The demand side that is law of demand,
when the price is high,
quantity of the product is low or when the price is low,
the quantity of the product is high. 



The diagram below show the suppliers had forced to increase the pricing of the coffee up to 21% from the august 2007 to august 2008 so that to prevent any shortages of supplies.

• The graph shows how the law of demand works when the coffee price is affected and shows that when the price is decrease, the quantity of the coffee will increase.

The supply side that is the law of supply 
show if the price of the coffee is higher,
the quantity of the coffee will higher or the price of the coffee is lower, 
the quantity of the coffee will lower. 

• The graph shows how the law of supply works and suppliers need to limit their resource which is the coffee in order to produce more for the customers.

For example, Arabica and Robusta country coffee sold at 70% of the price of the Arabian to four coffee roasting companies like Nestle, Kraft, Procter & Gamble and Sara Lee also show that the quantity of their coffee is high.

Coffee Arabica made from
 coffee flowers from Arabica !

Robusta Coffee

[ sources : http://www.wikinvest.com/commodity/Coffee ]

Written by : Teh Li Wei