Market
This presentation is the property of its rightful owner.
Sponsored Links
1 / 30

Market PowerPoint PPT Presentation


  • 78 Views
  • Uploaded on
  • Presentation posted in: General

Market. MBA NCCU Managerial Economics Jack Wu. Case: tanker Service market , 2005. Impact of Increasing oil prices Increasing China imports More stringent tanker standards. Characteristics of Perfectly Competitive Market. homogeneous (identical) product many small buyers

Download Presentation

Market

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -

Presentation Transcript


Market

Market

MBA NCCU

Managerial Economics

Jack Wu


Case tanker service market 2005

Case: tanker Service market, 2005

  • Impact of

    • Increasing oil prices

    • Increasing China imports

    • More stringent tanker standards


Characteristics of perfectly competitive market

Characteristics of Perfectly Competitive Market

  • homogeneous (identical) product

  • many small buyers

  • many small sellers

  • price takers (No influence on price)

  • free entry and exit (No barriers)

  • Both buyers and sellers share equal (symmetric) information


Differentiated or homogeneous

Differentiated or Homogeneous?

  • In market where products are differentiated, competition is not as keen as that in a market where products are homogeneous.

  • Compare

    • mineral water – differentiated

    • gold – pure commodity


No market power

No Market Power

  • Many small buyers

  • Many small sellers

  • Both buyers and sellers have no market powers.

  • Both buyers and sellers are price takers.

    • Note: buyer/seller with market power can influence market conditions


No barriers

No barriers

  • Free entry and exit

    • No entry barriers to potential competitors

    • No exit barriers to existing sellers


Free entry

Free Entry?

Japanese Beer Market, pre-’94:

Ministry of Finance

  • production licenses for minimum of 2 million liters a year

  • sales licenses limited to small family-owned stores


Symmetric or asymmetric information

Symmetric or Asymmetric Information

  • Market with differences in information not as competitive as one where all buyers and sellers have equal information

  • Compare

    • photocopying service

    • medical treatment

    • legal advice


Market equilibrium i

Market Equilibrium, I

Price at which quantity demanded equals quantity supplied

  • when market out of equilibrium, market forces push price towards equilibrium


Market equilibrium ii

MARKET EQUILIBRIUM, II

a

excess supply

supply

Price ($ per ton-mile)

22

b

20

equilibrium

c

demand

0

8

10

11

Quantity (Million ton-miles a year)


Market equilibrium iii

Market Equilibrium, III

  • excess supply = excess of quantity supplied over quantity demanded

    • triggers price decrease

  • excess demand = excess of qty demanded over qty supplied

    • triggers price increase


Supply shift i

Supply Shift, I

  • supply shifts down (right) -> lower price, larger quantity

  • supply shifts up (left) -> higher price, smaller quantity

  • final equilibrium depends on elasticities of demand and supply


Supply shift ii

SUPPLY SHIFT, II

a

original supply

Price ($ per ton-mile)

b

60 cents

20

new supply

19.60

d

demand

60 cents

c

e

0

10

10.4

Quantity (Million ton-miles a year)


Price elasticities of demand

Price Elasticities of Demand

Extremely inelastic demand

Extremely elastic demand

demand

original supply

original supply

b

60 cents

Price ($ per ton-mile)

60 cents

new supply

Price ($ per ton-mile)

20

20

b

demand

new supply

19.40

60 cents

60 cents

c

c

e

e

0

10

10

10.6

0

Quantity (Million ton-miles a year)

Quantity (Million ton-miles a year)


Price elasticities of supply

PRICE ELASTICITIES OF SUPPLY

Extremely inelastic supply

Extremely elastic supply

original and new supply

a

a

original supply

b

20

b

20

Price ($ per ton-mile)

Price ($ per ton-mile)

60 cents

60 cents

19.40

new supply

demand

demand

0

10

0

10

11

Quantity (Million ton-miles a year)

Quantity (Million ton-miles a year)


Promoting retail sales

PROMOTING RETAIL SALES

retail supply

after wholesale price cut

a

1.50

Price ($ per unit)

b

retail demand

1

Q

0

Quantity (Million units a year)


Demand shift i

Demand Shift, I

  • demand shifts down (left) -> lower price, lower quantity

  • demand shifts up (right) -> higher price, larger quantity

  • final equilibrium depends on elasticities of demand and supply


Demand shift ii

DEMAND SHIFT, II

supply

a

1 million

f

b

Price ($ per ton-mile)

20

new demand

1 million

original demand

c

10

10.8

0

Quantity (Million ton-miles a year)


Tanker services 2005

Tanker services, 2005

  • Increasing oil prices

    • Higher costs for tanker services  supply curve up

  • Increasing China imports

    • Higher demand for tanker services

  • More stringent tanker standards

    • Non-complying tankers scrapped  supply curve shifted to left


Valentine s day

Valentine’s Day

Nearing Valentine’s Day, price of roses always rises much more than the price of greeting cards. Why?


Calculating equilibrium i

Calculating Equilibrium, I

How would 3% increase in income affect price and sales of gasoline?

  • demand

    • price elasticity -.23

    • income elasticity 0.39

  • supply

    • price elasticity 0.62


Calculating equilibrium ii

Calculating Equilibrium, II

  • % change in qty demanded = -0.23* p % + 0.39 x 3%

  • % change in qty supplied = 0.62* p %

  • equate and solve: p % = 1.38%

  • % change in qty = 0.87%


Short run market equilibrium

SHORT-RUN MARKET EQUILIBRIUM

(a) Individual seller

(b) Market

short-run

marginal cost

short-run

supply

short-run

average

variable cost

1 million

c

22

Price ($per ton-mile)

22

Price ($ per ton-mile)

20

20

a

price

short-run

demand

0

0

10

12

100

105

Quantity (Thousand ton-miles a year)

Quantity (Thousand ton-miles a year)


Long run market equilibrium

LONG-RUN MARKET EQUILIBRIUM

(a) Individual seller

(b) Market

new long-run

average cost

long-run

marginal cost

long-run

supply

1 million

d

Price ($per ton-mile)

Price ($ per ton-mile)

21

21

20

20

a

original long-

run average

cost

long-run

demand

0

100

0

10

13

Quantity (Thousand ton-miles a year)

Quantity (Thousand ton-miles a year)


Short long run impact

Short/Long-Run Impact

If demand/supply shifts,

  • market price is more volatile in the short run than long run

  • greater change in market quantity over the long run than short run


Demand increase

Demand increase


Demand reduction

Demand reduction


Pricing and freight cost i

Pricing and Freight Cost, I

  • cost and freight

  • ex-works pricing

    • How does pricing policy affect sales?


Pricing and freight cost ii

PRICING AND FREIGHT COST, II

CF supply

25 cents

25 cents

ex-works supply

a

1.50

Price ($ per pound)

b

CF demand

ex-works demand

1

0

Quantity (Million pounds a year)


Retailing why coupons

Retailing: Why coupons?

  • alternative -- cutting wholesale prices

  • “With coupons, prevent retailers from getting part of price cut.”


  • Login