Transcript The Market
Achievement Standard 1.4 The Market Describing the Market (and all non – market) processes Explanation of factors that affect Market equilibrium Topics • The Market & Price • Competition, Money & the Law • Government Intervention © McIntosh Incorporated Market & Price What is a Market? “A market is a place or situation where buyers and sellers transact business. A market exists whenever there is buying and Selling” Diversity of Markets There are markets for: • Goods & Services • Resources • Borrowed Money • Foreign Exchange • Exports and Imports Non Market Ways to Satisfy Wants • • • • • Produce your own Voluntary Organisations Free (or Subsidised) Government Services Communes Family/Whanau Test your knowledge. What are examples of these non market ways to satisfy wants? Clue Clue Clue Market Equilibrium There are two “sides” to a Market: • The Buyers Remember the law of Demand. As price increases the quantity demanded will decrease and as price decreases the quantity demanded will decrease • And the Sellers Remember the law of supply As price increases the quantity supplied will increase and as the price decreases the quantity supplied will decrease Is there a middle ground……..? Market Equilibrium in Action Supply and Demand for Pies per day Price ($) (per Pie) Quantity Demanded Price ($) (per Pie) Quantity Supplied 5.00 4.00 3.00 2.00 1.00 1 3 7 9 14 5.00 4.00 3.00 2.00 1.00 15 9 7 3 1 Can the two sides agree? In a market the two sides come together there is one price where both sides will agree. In this example what is the Price and Quantity that the two sides can agree on? Answer: Price = $3.00 and the Quantity = 7 Market Price & Equilibrium Price • Market Price is the price the market is currently charging • Equilibrium Price is the price where everything supplied will be brought there is no excess demand or supply. What is Market Demand? How is it calculated ? The Market for Pies Price ($) S 5.00 4.00 What is Market Supply? How is it calculated ? Pe 3.00 2.00 1.00 D 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Qe Quantity When the Market Price does not equal the Equilibrium Price. Excess Demand For excess demand (ie a shortage) to occur, the market price must be below equilibrium. Market for All Black Jerseys Price S Pe P D Qs Qd Excess demand Quantity When the Market Price does not equal the Equilibrium Price. Implications - Excess Supply For excess supply (ie. a surplus) to occur, the market price must be above equilibrium. Market for Lions Jerseys S Price P Pe D Qd Qs Excess Supply Quantity Functions of Price • • Price rations out scare resources and output. Price acts as a signal to producers as to what is wanted by Consumers and what is not. The World Price There is more than just the domestic market available to New Zealand Producers. The world price will affect what is imported and what is exported World Price above NZ Price Price S Price World Price Pw Pe S Pe D Qe Qs Quantity Imported Qs Qe Made in NZ Sold in NZ World Price Pw Exported Qd World Price below NZ Price Brought in NZ D Qd Quantity Competition, Money & Law Competition is when there is another producer in the same market, producing an identical or very similar good or service. There are two types of competition Producers use. Price & Non-Price Price Competition Beating the competition by offering a lower price. Following the law of demand. As P ↓ QD will ↑. Producers will hope for increased sales hopefully at the expense of a competitor. Producers will need to take care that sales increase by enough to cover any increased costs. This type of competition can lead to price wars. P P1 P2 Can you think of some recent examples of price competition? D Q1 Q2 Q Competition Continued Non Price Competition involves persuading the buyer through ways other than lowering price. The Aim is to move the whole Demand Curve. An increase in Demand. P P The Price does not change but demand moves from D to D. Quantity from Q to Q1 D Q Q1 D1 Q Can you think of examples of non price competition in the market today? Clue! Types of Non Price Competition Advertising Added Extras Packaging Competitions, Games & Prizes Non Price Competition Improving Service Product Variation Sponsorship Product Differentiation Money When any goods or services, factors of production or foreign exchange are exchanged, the trade will normally involve Money. Without money the only other means of exchange is by Barter. • Barter is the exchange of goods and services for goods and services • Money is anything that most people will accept in exchange for goods and services, with the knowledge that others will accept it from them. Means to buy now/pay later Store of value Functions of good money A measure of value Means of exchange The Law Laws provide a set rules that everyone knows and should abide by, so there is a high degree or predictability. People know what it is, and is not, allowed when buying and selling. Buyers Sellers •Have the right to be given •what they paid for and not •something else. •Have protection under specific •Consumer Laws. •Have the responsibility to check •Before they buy. •Have to pay for goods and •Services in full and on time. •Have right to be paid. •Have the right to repossess goods •or sue customers who do not •pay (I.e. take them to court and •demand the money.), depending •on the type of transaction. •Must have the legal right to sell. •Must comply with consumer and •other laws. Law of Contract A contract is a legal agreement which is binding. If one side breaks a contract, the other can ask a court to enforce the contract What are the essential elements of a contract? • Caveat Emptor “let the buyer beware” • Signature Your signature means you have read and agree with everything. Consumer Laws: • • • • • Fair Trading Act (1986) Consumer Guarantees Act (1998) Door to Door Sales Act (1976) Purchase Act Credit Contracts Act Law of Contract A contract is an agreement between 2 or more people that is Legally binding. A valid contract has 7 essential requirements: 1. 2. 3. 4. 5. 6. 7. Intention. The contract must be serious – a legal relationship Legal. The object of the contract must be legal Offer and Acceptance. Must be an offer and acceptance No Duress. No use of undue force Contractual Capacity. parties to the contract must be of age, sane and sober. Issues arise when a person has a mental disorder, is a minor (under 18) or intoxicated/drugged. Minors can enter into certain types of contract usually with permission of guardians Proper Form. A formal contract must be in writing. Contracts can be an oral agreement Consideration. Something of value must be exchanged. Government Intervention What happens when the equilibrium price is considered to be too high or too low? Governments can intervene in the market place to cause price changes which are considered socially desirable. HOW? What is a black market? Price Controls Price Ceiling or Maximum Price. This is a price which is below equilibrium. The market price can not rise to equilibrium without breaking the law. The effect of a maximum price (Price Ceiling) S P Pe Pmax Price Ceiling D Qs Qe Qd Q Permanent Excess Demand Permanent Excess Demand can create a black market Government Intervention Continued Price Floor or Minimum Price This is a price above equilibrium. It is not possible for market price to fall to equilibrium without breaking the law? The effect of a minimum price (Price Floor) Price S Pmin Price Floor Pe D Qd Qe Qs Excess Supply Quantity Past examples include NZ Wool Other methods of Government Intervention Direct & Indirect Taxation A direct tax is paid by the tax payer to the Inland Revenue Department (IRD), e.g. Income Tax. A indirect tax is collected from the tax payer by someone else. (A third party) who pays it to the IRD. e.g. GST Subsidies A subsidy is a negative tax which is paid to the producer by the government to encourage production and lower prices to consumers Price ($) The effect of an increase in Indirect Tax Effects S2 P2 Tax S1 Price ($) P1 The effect of a subsidy S1 D Subsidy S2 P1 Q2 Price Q1 Quantity P2 The effect of an increase in Direct Tax D S ($) P1 P2 D1 D2 Q2 Q1 Quantity Q1 Q2 Quantity Return to Non Price Competition Market for Goods and Services The market for goods and services is a final market, where buyers are consumers who buy goods and services to satisfy their needs and wants. Market for Resources The market for goods and services are the factor markets of land, labour and capital where producers buy resources to combine to make goods and services Market for Borrowed Money The market for borrowed money is often called the finance market. This is where producers and consumers go when they need to borrow money. When they borrow the pay the price for the use of that money. This price is interest Market for Foreign Exchange The market for foreign currencies where people buy and exchange currencies. Market for Exports and Imports The market where countries can sell their goods and services (Exports) or buy other countries goods and services (Imports). Often referred to as the External or Overseas Market. Is linked to the Foreign Exchange Market. Return to the Market The Fair Trading Act (1986) Sellers must tell the truth and not deliberately mislead consumers. They must “sell it like it is” Consumer Guarantees Act (1993) If consumer goods are faulty, the seller must fix or repair them, replace or refund the customer their money. Not give them a credit note. Note a seller does not have to take back goods because you have changed your mind or they do not fit you. Door to Door Sales Act (1967) If an uninvited salesperson calls at your home and sells you goods on credit or time payment, you have a 7-day “cooling off” period, during which time you can cancel the contract. Credit $20+ Cash $40+ Hire Purchase Act Sets out what any seller must do before they repossess goods when the purchaser has fallen behind in their payments. Credit Contracts Act Requires all lenders to tell people precisely what interest and other charges they will be paying for when borrowing money Return to Law of Contract Market Demand Is the total of everyone’s individual demand. It is calculated by adding horizontally all individual demand. Price ($) 10 7 4 2 P Ice Creams Quantity Demanded Sally Tom Jade Market 3 5 7 9 1 3 5 7 4 5 7 10 8 13 19 16 D Q Market Supply Is the total of all producers supply. It is calculated by adding horizontally all individual supply. P Price ($) 10 7 4 2 S Ice Creams Quantity Supplied Dave’s Patty’s Jim’s Pam’s 10 8 6 3 12 9 8 3 9 7 5 2 31 24 14 8 Back to Market Price & Equilibrium Q Bibliography • • • • • • Williamson, M (2003). Year 11 Economics Study Guide. NCEA Level 1. ESA Publications (NZ) Ltd. Singapore. Pp. 87 – 146 Evans, Geoff (2002) Economics for the Market. A Year 11 Economics Course. Pearson Education, Malaysia Pp. 121 – 186 Rennie, Dan (2000). Understanding Economics Year 11. Concepts, Definitions, Skills and Activities for Year 11 Economics. New House Publishers Ltd. Hong Kong. Pp. 192 -263 www.moh.govt.nz www.redcross.org.nz www.wwoof.co.nz Who Made this?