Market Types, Supply & Demand, GDP, Unemployment, Inflation

Item 6: Market

Market: an element that is continuously present in our lives and is formed by the buyers and sellers of a good or service.

Types of Markets

There are several types:

Depending on the type of goods (traded)

• Factor markets: Markets to buy or sell factors of production. Example: working machinery.
• Market for goods and services: Buying or selling merchandise.

According to the number of buyers and sellers

• Perfect competition: Existence of many buyers and sellers and a homogeneous product. Ex: fruit, vegetables.
• Monopoly: A single seller facing many buyers. Ex: a local utility company.
• Oligopoly: Many buyers and few firms. Ex: gas stations, mobile operators.
• Monopolistic competition: Many buyers and sellers and a differentiated product by brand, model, design. Ex: cars, computers, etc.

1.1 Supply and Demand

Supply (Offer)

Supply: The disposition of sellers to offer a product at a specified price.

Factors affecting supply:

• Costs of the company to obtain or produce the goods.
• Weather, taxes, and other external factors.

The higher the price, the greater the quantity that vendors offer. The relationship between quantity and price is expressed in the supply schedule and illustrated by the supply curve.

Demand

Demand: The disposition of buyers to purchase a product at a specified price.

Factors affecting demand:

• Purchasing power of the buyer.
• Tastes and preferences.
• Availability of substitutes.

The higher the price, the fewer buyers will purchase. Relationships are expressed in the demand schedule and illustrated by the demand curve.

1.2 Market Price

Market price arises when the desires of buyers and sellers interact: buyers generally prefer lower prices while sellers prefer higher prices. When those preferences do not match, the price mechanism moves toward balance.

• High price = discourages buyers, creating an oversupply. This leads to lower prices when sellers are unable to sell the product.
• Low price = discourages sellers because they may not obtain profits, leading to excess demand. This leads to price increases as sellers find buyers willing to pay higher prices.

Markets are in equilibrium when there is neither excess supply nor excess demand.

2. Economic Indicators

GDP (Gross Domestic Product)

GDP: The monetary value of all final goods and services produced within a country during a period of time. There are three important aspects:

• Final goods and services: Acquired by consumers and not used as inputs in further production.
• Valued in monetary units: Quantities are transformed into monetary units to facilitate aggregation.
• Time period: Normally measured over a year.

Unemployment Rate

Unemployment rate: The percentage of the active population that is unemployed.

Unemployment rate = (Population unemployed / Active population) × 100

Ways to measure the unemployment rate:

• By the National Employment Institute.
• By the APS (Active Population Survey).

Inflation

Inflation: A general and continuous increase in the level of prices of goods and services. It may influence the course of a country's economy and, in turn, the lives of people in several ways: