Understanding Price Determination and Public Debt Dynamics
Price Determination in the Markets of CP: The theory of demand shows the behavior of buyers in the market at different prices. The theory of supply shows the behavior of producers and sellers in the market at different prices. If we combine both behaviors within the same market, we obtain the following result: (GRAPHIC). The point where the two curves intersect is called equilibrium. This point indicates where supply equals demand, representing a specific amount of product and price per unit. It matches consumer behavior with that of sellers, thus determining the market price of the product. In this balance, we find both buyers and sellers. Producing more than what is determined by the equilibrium point would create a surplus, preventing the price from increasing, while competition would drive the price down. Conversely, if the market price is less than that determined by the equilibrium point, the quantity demanded would exceed the quantity supplied, leading to excess demand. This situation results in a deficit, where competition among bidders would lower the price. Debt and Public Types: Public debt is a loan agreement under which one party, typically the state or a public body, receives a sum of money from another party, which may be any person or entity, public or private. The state or public entity, as the issuer of government debt securities, commits to repay the borrowed amount plus interest agreed upon over a specified period. The state uses public debt to mobilize individual savings and increase aggregate demand through public spending. Individual savings serve as both a source of investment demand and public spending. The public entities capable of issuing public debt include: A. The state. B. Autonomous communities. C. Local administration. D. Public institutions. Public debt may be classified as:
- Amortized: The state pays a fixed amount of capital and interest at regular intervals.
- Consolidated: The loan agreement guarantees repayment of the borrowed amount plus interest, backed by law, state-owned property, and taxes.
- External: When the state borrows money from another state or public entity, with the loan made in foreign currency.
- Internal: When the state borrows from natural or legal persons of the same nationality, with the loan made in domestic currency.
- Float: The opposite of consolidated public debt, meaning it is not guaranteed, and repayment may not occur at maturity, potentially increasing or decreasing the agreed capital.
- General: Debt securities released to an anonymous market.
- Singular: Debt securities released to specific individuals or entities.
- Nominative: When the title is incorporated into a document containing the lender’s data.
- Al Carrier: When the lender’s name appears, and the holder is paid on the due date.
- From the State: A loan authorized by the government, with a duration of 18 months, intended to finance public spending.
- The Treasure: A loan from the government for a period shorter than 18 months, aimed at funding the public treasury’s needs.
Conditioning Factors of Perfect Competition:
The perfectly competitive market is one where all sellers and buyers are present, and there is a relationship between them to determine how much and at what price. For this mechanism to work, four important conditions must be met: The existence of a large number of buyers and sellers in the market. This means that the quantity a single buyer or seller wants to buy or sell is so small that they cannot influence the product’s price. Therefore, in a perfectly competitive market, bidders consider the price as given, not something they can determine. Under perfect competition, the price is accepted. If a buyer wants to purchase at a price below equilibrium, competition among buyers will drive the price up. Conversely, if a seller wants to sell at a price higher than the competitive equilibrium, the price will decrease. Thus, in competition, if someone tries to challenge the price, the remaining buyers and sellers will expel the rebel. Both buyers and sellers must be indifferent as to who buys and sells. In market competition, buyer-seller relationships are impersonal. Continuing this impersonal relationship, the product must be uniform and valid for any consumer. All buyers and sellers must have full knowledge of the general market conditions. This means that sellers usually know what buyers are willing to pay for goods, and buyers know the prices sellers want to collect. With this knowledge, predicting the equilibrium price and quantity becomes easier: one in which buyers and sellers agree on quantity and price. Once the equilibrium price is established, a buyer will buy at a lower price, and no seller will sell at a higher price. If this does not happen, the market will react accordingly. There must be maximum freedom of movement for the factors of production. Producers should be free to choose which products to produce and to enter or exit the market freely. When these four conditions are simultaneously met, we are in a perfectly competitive market. The perfectly competitive firm accepts the market price, which is not determined by them. The amount of assets produced depends on the market price. The perfectly competitive employer aims to sell all units of the product at the market price. From this, we can deduce that the perfectly competitive firm has a completely horizontal demand curve. Consequently, the key decision for a perfectly competitive firm is whether to produce and, if so, how much. To determine the amount to be produced, we must apply the elementary theory of supply, which tells us the amount offered by a firm at each price. The ultimate goal of any business is to maximize profits.