Market Structures and Labor Economics Explained
Market Structures
Competition: A rivalry between several companies that sell the same kind of goods or services in that market.
Perfect Competition
Perfect competition is a type of market in which there are many small firms that produce a single, undifferentiated product, so none of the producers can influence the price at which they sell their product.
Market Balance: Short & Long Term
Short Term: Market conditions in the short run determine the behavior of all producers and consumers of a product. The combination of supply and demand leads to a price and an equilibrium quantity.
Long Term: The equilibrium price allows producers to cover all their costs but make little or no economic profit. It is the lowest price that producers can offer goods in a sustainable way. It benefits the consumer, as this market offers the best possible price.
Monopolistic Competition
This market has a large number of suppliers due to its low entry barriers, and they sell similar but differentiated products.
Features of Monopolistic Competition
- Few barriers to entry and exit.
- A large number of producers.
- Differentiated products are exchanged.
- Producers have some power to set prices, but this power is not absolute; prices can only be set slightly above the market level.
Oligopoly
This is a market structure found in sectors where barriers to economic activity are high.
Features of Oligopoly
- A small number of companies compete.
- Generally, only large companies exist, each with a significant market share.
- The small number of firms means the decisions of one company significantly influence the actions of the others.
Cartels
A formal agreement between several companies working in an oligopolistic market to achieve higher profits through common pricing, geographical distribution, market allocation, or limiting overall production.
Monopoly
A market where one company controls all or most of the supply of a product. For a monopoly to exist, there must be significant barriers that prevent other companies from producing it.
Circumstances Leading to Monopoly
- Control of Resources: A company controls all resources needed to produce the good.
- Technological Superiority: A company holds technology sufficient to offer a unique product (e.g., Microsoft in early OS).
- Legal Monopoly: A state grants exclusive rights to one company to offer a product (e.g., CAMPSA).
- Natural Monopoly: Occurs mainly in utilities like water or electricity supply, where a single firm can serve the market more efficiently than multiple firms.
Labor Market Concepts
Work and Salary
Work: This refers to the physical and intellectual effort performed by humans to contribute to the production of goods and services.
Salary: This is the compensation workers receive for their contribution to production.
Labor Supply (Job Offer)
The amount of labor offered in an economy depends on the size of the population (a larger population means a greater supply of labor) and the number of hours each person is willing to work, which depends, among other factors, on the pay.
Labor Demand
Companies need workers. Typically, employers are willing to hire new employees as long as the revenue generated by their work is higher than the wages they have to pay.
Understanding Unemployment
Causes of Unemployment
Unemployment is caused by a mismatch between the demand and supply of labor. Sometimes companies seek workers with specific qualifications that are not available. Another cause is poor distribution of employment, where multiple job holders routinely work overtime, preventing others from accessing the labor market.
Unemployment Rate
Examples of groups with potentially higher unemployment rates include youth, women over 45, and people with low educational levels.
Types of Unemployment
- Frictional or Transitional Unemployment: Occurs when people change jobs and are temporarily unemployed or when seeking a first job after graduation.
- Seasonal Unemployment: Generated at certain times of the year.
- Cyclical Unemployment: Occurs during times of economic crisis.
- Structural Unemployment: Caused by imbalances in skills between the jobs offered and the skills demanded.
