Demand, Supply, Market Structures, and Macroeconomics
Demand
Demand is the amount of an asset that a potential buyer is willing to acquire at a given price during a specific period.
Factors Influencing Demand
- Price of the good: The higher the price, the lower the demand.
- Prices of complementary goods: When the price of a complementary good increases, demand for the original good decreases.
- Prices of substitute goods: When the price of a substitute good increases, demand for the original good increases.
- Consumer preferences: When a consumer’s preferences shift towards a certain good, demand increases.
The Demand Curve
The demand curve is the graphical representation of the relationship between the price of a good and the quantity demanded. An individual demand curve represents the quantities and prices for a single applicant. A market demand curve represents the collective demand in a market.
Supply
Supply is the amount of a good or service that a producer or trader is willing to sell at a certain price.
Individual supply refers to a single producer, while market supply is the aggregate of all individual supplies.
Factors Influencing Supply
- Price of the good: The higher the price, the greater the quantity offered. The relationship is direct.
- Prices of related goods: If the prices of related goods increase without a corresponding increase in the price of the original good, the supply of the original good will decrease.
- Prices of productive factors: When the price of a productive factor increases, the supply of the good decreases.
- Business goals: Company revenues are the result of multiplying the quantity sold by the price.
The Supply Curve
The supply curve is the graphical representation of the quantities that producers are willing to offer. An individual supply curve represents the quantities and prices for a single bidder. A market supply curve represents the collective supply in the market.
Market Structures
Monopoly
A monopoly is a market with imperfect competition characterized by a single seller (offeror) that caters to all demand.
Characteristics of a Monopoly
- There is only one seller.
- The product is homogeneous.
- There are significant barriers to entry; no other company can easily enter the market.
Monopolies generally charge higher prices and offer a smaller quantity of the good. Example: RENFE (Spanish National Railway Network).
Oligopoly
An oligopoly is a market with imperfect competition where a small number of firms control the supply.
Characteristics of an Oligopoly
- There are few sellers.
- Each seller can affect the price by varying its supply.
- The products offered are homogeneous. The articles from each company are either identical or perfect substitutes.
- There are barriers to entry. Production requires significant investment.
Examples: Oil, mobile telephony.
Macroeconomics
Macroeconomics is the study of the national economy and international consumption. It observes the economy as a whole, focusing on the total production of all goods and services, rather than the production of individual companies. Economists use macroeconomic variables to determine the state of an economy and make comparisons with other countries.
Economic Indicators
Conjunctural indicators serve to identify changes that economic variables have experienced in a recent period (month or quarter). There are many indicators, including those related to economic activity, prices, salaries, consumption, and the labor market.
Measuring Economic Growth
Gross Domestic Product (GDP) is used as a reference, but it does *not* include:
- Work performed within the underground economy.
- The value of domestic tasks.
- Deterioration of the quality of life and the environment.
- Activities that do not go through the market (social, religious, etc.).
Human Development Indicators
Due to the limitations of GDP, the United Nations developed the Human Development Index (HDI), which considers GDP and other factors such as life expectancy and schooling rates. Another indicator, the Index of Preparation for the Future, also takes into account a country’s ability to develop, health spending, and education level.