Understanding Market Dynamics and Economic Concepts

Posted on Feb 24, 2025 in Economy

Market Dynamics and Economic Concepts

Market: A mechanism through which buyers and sellers interact to determine the quantity of a product to be exchanged and its price.

Application: The amount of a good or service to be acquired under defined conditions.

The Demand Curve: The locus of points that indicate the different amounts of goods that a consumer is willing to buy at different prices.

Individual Demand

  • The price of a good varies inversely proportional to the quantity demanded.
  • The greater the consumer’s income, the greater the consumption.

Relationship according to the quantity demanded and income:

  • Inferior goods: Demand falls as consumer income increases.
  • Normal goods: A change in demand is directly proportional to the increase in consumer income.
  • Luxury goods: Demand increases more than proportionally to the increase in consumer income.

Supply

The amount of goods and services that sellers are willing to offer under certain conditions.

  • Two categories:
    • Individual supply: The quantity of products that a single company is willing to sell.
    • Aggregate supply: The total quantity of products that companies are willing to generate and sell.

Individual Supply

The quantity of a good also depends on a set of variables:

  • The price of the good: Directly determines the quantity supplied:
    • If the price increases, the quantity increases.
    • If the price decreases, the quantity supplied will also decrease.
  • The price of other goods:
    • If the price of a substitute good increases, the company will tend to reduce supply.
    • If the price of a complementary good increases, demand decreases, and thus supply will decrease.
  • The costs of factors of production: If costs increase, profits decrease, reducing production.
  • The technological level:
    • New technologies increase production and supply.
    • Inefficient technologies increase costs, reducing production and quality.
  • Business goals

Input-Output Tables

A systematic method of gathering and reporting information that provides a quantitative view of the economic interdependencies between different sectors of the economy.

Unemployment Rate

According to neoclassical economics, unemployment is a labor market disequilibrium that occurs when the active population (those seeking work) is higher than the employed population.

Types of Unemployment:

  • Frictional unemployment: Occurs during the time between leaving one job and finding another.
  • Structural unemployment: A mismatch between the supply and demand for workers.
  • Cyclical unemployment: Occurs when labor demand falls due to reduced spending and production.
  • Seasonal unemployment: Varies with the seasons.

Formulas

I = X * PV B = I – Ct Cu = CVP * X UR = FC / (PV – CVU) Average Production = Total Production / Number of Workers Marginal Production = Total Production – Previous Total Production

Market Structures

The different characteristics that allow us to understand the differences and similarities between various kinds of markets.

Characteristics generally used to classify market structures:

  • Degree of concentration: Number of companies offering the same product.
  • Degree of homogeneity: Whether the products are differentiated.
  • Barriers to entry: Difficulties a business faces to enter an economic sector.
  • Existence of perfect information: Complete and transparent information for all market participants.
  • Freedom of entry and exit: Consumers and producers can freely enter and exit the market.