Understanding Market Demand, Supply, and Competition

Demand: The quantity of a good or service that consumers are willing and able to purchase at a given price and time. Factors influencing demand include:

1. Price of the Good: Changes in price can increase, decrease, or maintain demand.
2. Prices of Other Goods:
   • Substitutes: Demand increases when the price of a substitute good rises.
   • Complements: Demand decreases when the price of a complementary good rises.
   • Independent: Demand is unaffected by changes in the price of other goods.
3. Consumer Income:
   • Normal Goods: Demand increases with higher income.
   • Inferior Goods: Demand decreases with higher income.
4. Consumer Tastes and Preferences: Popularity increases demand.

Supply: The quantity of a good or service that producers are willing and able to sell at a given price and time. Factors influencing supply include:

1. Price of the Good: Higher prices generally lead to higher supply.
2. Prices of Other Goods: Supply of a good may decrease if the price of other goods increases.
3. Cost of Production Factors: Increased costs can shift production to other goods, decreasing supply.
4. State of Technology: Improved technology can increase supply by reducing costs.
5. Business Goals: Supply can increase or decrease based on changes in business objectives.

Market Classifications

Market rates can be classified by:

a) External Market Relationships:

• Free Market: Transactions are conducted with full autonomy.
• Involved Market: An authority sets prices or quantities.

b) Internal Market:

• Transparency: All buyers know the prices of all sellers.
• Friction: Different prices exist for identical products.

c) Actual Elements of the Market:

• Perfect: Goods are homogeneous and undifferentiated.
• Imperfect: Goods have different characteristics.

d) Personal Items:

• Normal: No single subject has a significant influence on price.
• Tampered: A subject has a decisive influence on price or quantity.

Imperfect Competition

Imperfect competition includes market forms between perfect competition and monopoly. Companies differentiate products or costs to secure market share. Barriers to entry include:

• Institutional Barriers: Legal restrictions hinder new competitors.
• Economies of Scale: Large firms have lower production costs.
• Product Differentiation: Unique features and brand image create small, competitive markets.
• Production Costs: Established companies have cost advantages.