Economic Fundamentals: Markets, Resources, and Labor

Market Concentration and Competition

The impact on a greater variety of products is significant. For small businesses, high costs and an inability to compete often force them to close, resulting in a single company supplying the entire demand.

Understanding Capital Markets

Owners of capital market assets can dedicate cash to consumption or invest it, seeking compensation or interest for the use of their capital. (Graph 4) Capital market intermediaries require highly specialized knowledge. Businesses need long-term credits, while families often want easy access to their money.

Natural Resources: Scarcity and Degradation

In recent decades, many natural factors such as fishing and water have been incorporated into economic analysis. This is because industrial development has made them scarce, reducing their stock or degrading their quality due to contamination. (Graph 5)

Labor Market Dynamics

Defining Labor Demand

Labor demand is the number of workers that companies are willing to hire at a given wage level. Labor demand depends primarily on the level of wages, productivity, and prices of goods produced. (Graph 6)

The Role of Labor Unions

In response to situations of dependence and to prevent potential abuse, workers group together into unions. Trade unions are associations of workers that defend their rights. Unions seek to establish a minimum wage below which no contract can be made, and also negotiate other employment issues, both monetary and non-monetary. (Graph 7)

Market Failures: When Markets Fall Short

The market does not always lead to economic efficiency.

Public and Private Goods: Rivalry and Exclusion

Public goods are goods whose use by one person does not reduce its use by another, and from which no other person shall be denied access. E.g., lighting, education. Private goods are exclusive and rivalrous, and are offered by private companies in the market. Rivalry in the consumption of a good or service means that if one person consumes it, another cannot (e.g., a bus seat). Exclusion refers to the ability to prevent those who do not pay for the good from consuming it (e.g., a garment of clothes).

Understanding Externalities

Externalities: These are the effects of certain economic activities that positively or negatively affect other entities who neither pay for nor are compensated for them.

• POSITIVE: When the activity of one subject provides a benefit (e.g., university education).
• NEGATIVE: When the activity of one subject causes harm (e.g., pollution).

Key Characteristics of Public Goods

Public Goods: These are goods whose use by one person does not reduce its use by another (e.g., lighting).

Features:

• No rivalry: Consumption by one person does not diminish availability for others.
• No exclusion: It is difficult or impossible to prevent non-payers from consuming the good.
• Often not paid for directly (e.g., street lamps).
• Can lead to unequal distribution of income.