Market Dynamics: Monopolies and Oligopolies
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ScribdTranslationsMarket Dynamics: Monopolies and Oligopolies
Translated by
ScribdTranslationsBasic Functioning of the Market
Fundamentals of Economics
IACC Institute
December 4, 2017
Development
1. What type of markets do monopolies and oligopolies represent? Mention three.
characteristics of each one of them.
R.- The monopoly represents what is an imperfectly competitive market, where it lacks
from a large number of buyers or producers, this gives power to one of any of them
the two to influence prices and thus the distribution of benefits, the monopoly is the
the opposite extreme of perfect competition, where a single company concentrates in the
satisfaction of market needs, within the characteristics of the monopoly
they find the following:
There is only one producer.
The good or service offered has no close substitutes.
There are many buyers
There are natural or imposed barriers that prevent the entry of competing companies.
Both companies and consumers are fully informed about prices and
products available in the industry
The oligopoly is a type of market that lies between perfect competition and
the monopoly, arise from the disintegration of monopolies and from the merger or purchase of
companies that are in the monopolistic competition market, in this type of models
there are 2 and at most between 10 to 15 companies dominating a market, they have a large
capital, each company has its own policy and is free to act in the market as they see fit.
suitable. Its characteristics are:
Each individual company can influence the market price
Few suppliers, many demanders
There is a small number of producers (oligopoly of supply) or a small number of
consumers (demand oligopoly)
The good or service delivered has no close substitutes.
Both companies and consumers are fully informed about the prices and
products available in the industry
International transport companies (air or sea) are an example of oligopoly.
The supply, the unions are an example of oligopoly of demand.
2. Regarding the factors that determine the supply or demand of a good, develop them.
following topics:
a) How is the price of substitute goods related to the price of goods?
complementary to the demand for a good "x".
R.- The prices of related goods and the existing quantity of them influence the
demand for a good, there is a particularly important relationship between substitute goods, which
those who attend to perform the same function, the demand for a good (A) tends to be very
low, if the price of the substitute good (B) is low, in comparison to the complementary goods, if
a decrease in the price of good (A) leads to an increase in the demand for good (A), therefore
they respond to an increase in demand or consumption for good (B), which is a complement of good (A), without
that its price in the market is modified.
In a country called Felicilandia, people's income has increased substantially in
the latest measurements. Graph how the effect of this factor is represented in the demand for a
well 'x' and finally in the market equilibrium, explaining its meaning.
The lower the price of the good, individuals will be willing to consume more.
amount of that good, at a given moment.
The demand theory establishes the law of declining demand which states:
When the price of a good rises (and all other factors remain constant), the
buyers tend to buy less quantity when the price of a good decreases.
(keeping other factors constant) the quantity demanded will increase
For market equilibrium, the instrument that regulates and coordinates the plans for buying and selling
of market forces is the price, it is clear, for example, that when the price increases
the quantity demanded decreases and inversely, the quantity supplied increases; this is
produce because consumers are not willing to pay more and producers want to
receive more for the same amount of product. Now they want to know how they interact with the
forces to affect prices and reach an agreement that allows for the same amount to be traded
goods and services. To do this, we will begin by graphically analyzing the equilibrium situation. We
it will illustrate the supply and demand curve in a single graph, this is possible because both have
were constructed placing the price variable on the vertical axis and the quantity variable on the axis
horizontal.
The government has decided to impose a tax on the production of good 'x', news regarding
which the producers have reacted to. Graph how the effect of this factor is represented in
the supply of the good and, finally, in the market equilibrium, explaining its meaning.
Any measure taken by the government in the business and labor sector has an influence.
considerately in the supply curve. The considerations related to the environment.
environment and health determine the technologies that can be used, while taxes
and the legislation on the minimum wage can significantly increase prices of the
factors. For example, if the government decides to increase the tax by law, this measure will
it raises the cost of the tax factor for companies, which translates into an increase in the
production costs, therefore the producer decreases the supply of the good or increases its price,
in order to maintain their profits and not be harmed.
The instrument that regulates and coordinates the buying and selling plans of market forces is
The price is clear, for example, that when the price increases, the quantity demanded.
decrease and inversely, the quantity supplied increases; this happens because the
consumers are not willing to pay more and producers want to receive more, because of the
same amount of product.
Now it is wanted to know how the forces interact to affect prices and reach an agreement.
that allows for trading the same amount of goods and services. To this end, we will begin by analyzing
graphically the equilibrium situation.
3. Develop the following exercise, given the following functions that represent the
demand and supply of a good, respectively.
Qd = 250 - 5p
a) Calculate the equilibrium price and quantity for this market.
QD= QO
250 - 5p = 5p - 50
300 = 10p
30 = p
QD= 250 - (5 x 30)
QD= 250–150
QD= 100
QThe(5 x 30) - 50
QThe= 150–50
QThe= 100
b) Graph the supply and demand curves, representing market equilibrium.
If the price is 0, the quantity demanded is:
QD 250–5p
QD= 250–(5x0)
QD= 250
If the quantity demanded is 0, the price is:
QD= 250–5p
0 = 250–5p
-250 = -5p / -1
p
c) Explain what type of imbalance is created when considering a price of $40 per unit.
Graph the situation.
QDQO
250–5p = 5p–40
290 = 10p
p
QD= 250 - (5 x 29)
QD250–145
QD= 105
QThe= (5 x 29) - 40
QThe145 minus 40
QThe105
Having a price of $40, a decrease in the equilibrium price point is seen, and a rise in the
the quantity of demand, that is, at a lower price, the greater the demand.
d) Explain what a market equilibrium situation consists of and the possible imbalances.
that may be generated.
The instrument that regulates and coordinates the buying and selling plans of market forces is
The price is clear; for example, when the price increases, the quantity...
demand decreases and inversely, the quantity supplied increases; this occurs
because consumers are not willing to pay more and producers want to.
receive more for the same amount of product. Now we want to know how they interact
forces to affect prices and reach an agreement that allows trading the same amount of
goods and services. To do this, we will begin by graphically analyzing the equilibrium situation.
The supply and demand curve will be illustrated in a single graph, this is possible because both
they have been built placing the price variable on the vertical axis and the quantity variable on the axis
horizontal
Market situations when there is imbalance. One will start by forcing a situation.
at a price lower than the equilibrium, to understand this one must understand that there is
forces that exert their power to reduce the price, such as:
1. Producers who have been unable to sell lower their prices to
manage to get rid of the inventory.
The prospects of price reduction lead producers to reduce production.
currently, they decrease the offered amount (some companies cannot maintain the level of
price competitive and exit the market.
3. The price reduction encourages the quantity demanded to increase (there are new
consumers who are willing to buy at the new prices and the current ones
they will consume more).
4. Price reduction eliminates the excess supply, as it increases the quantity.
demanded and decreases the amount offered.
In the opposite case, when the price increases, in this situation the forces exert their power to
increase the price:
There are situations in which the government sets prices, for example the minimum price, which is above
the market equilibrium price causes a market imbalance known as
excess supply.
The case will be analyzed in which the government sets a maximum price below the equilibrium price.
market, which causes a market imbalance known as excess demand.
Bibliography
IACC (2017). Basic functioning of the market: Demand, Supply and Equilibrium. Fundamentals
of Economics. Week 3.