Level 1 - Economics - Market Structure

Market Structure

Measuring Concentration of market

Concentrate 指該市場主要被某幾個大集團所 dominate，有以下兩個 measure:

1.      Four-firm concentration ratio:

該市場四個最大的公司 market share / % of sales 的總和:
- 100% à Monopoly
- Close to zero à Highly Competitive
- < 40% à Competitive
- > 60% à Oligopoly

2.      Herfindahl Hirschman Index (HHI):

該市場的 50 大或全部公司的 sum of (market share²)
- 10000 à max value à Monopoly
- > 1800 à Not competitive
- 1000 – 1800 à Moderately Competitive
- < 1000 à Competitive

Perfect Competition

Characteristics:
- All suppliers selling the identical product
- Many sellers and they are small relative to the market
- Low barrier of entry
- Price is determined by market demand and supply à 市場上有一個公價，所以demand curve對於一個 supplier而言是水平的 (perfectly elastic)，只可根據市價出售 à Price Taker

Profit:
Price – Average Total Cost) * Quantity

以上的例子，紫色部份的是economic profit，但由於perfectly competitive market是沒有barrier of entry，economic profit 會吸引其他supplier加入，market supply 上升，會drive down market price，直到no economic profit

Monopoly

Characteristics:
- One Supplier only
- No close substitute
- High barrier of entry
- Price is determined by seller which maximizing its profit à Price searcher

Profit:

MR = marginal revenue，假設沒有 price discrimination，多賣一件，全部數量的價錢都會減低，所以它是 under demand curve 的

Monopoly就是用 MC 及 MR 的intersection 決定生產的數量以達到 profit maximization

Government Intervention

由於monopoly不是生產 equilibrium quantity à Deadweight Loss，所以政府會對 monopoly 的定價限制:

1. Average Cost Pricing

    Set price = Average Total Cost à no economic profit

2. Marginal Cost Pricing

    Set price where MC curve intersect with demand curve

*if the price level is below the average total cost, government will provide subsidy to cover the economic loss

 

Monopolistic Competition

Characteristics:

- Many independent sellers

- Slightly differentiated products

- Compete on price, quality and marketing

- Low barrier of entry

Profit:

In short run, 跟Monopoly 相似，可透過 set 價錢去maximize economic profit。Long term，由於economic profit 會吸引其他人加入，會令 demand curve shift to the left à 最後Price = ATC and no economic profit

不過，product innovation可以令product更有competitiveness，減低 substitute 的威脅，令 economic profit stay longer

 

Oligopoly

Characteristics:

- Few large sellers

- Interdependence between competitors

- Significant barrier of entry

Profit:

Sellers 可透過不同類型的合作或協調來 set price à Economic Profit，大部份industry 都會有一個leader 擔任set price 的角色，而其他的會 follow

Kinked Demand Curve

假如 oligopolies 之間是沒有任何形式的合作，其中一間 firm 加價，其他 firms 不會 follow，所以稍加價會令quantity大跌。如果其中一間 firm 減價，其他的都會 follow，所以即使減了價都 quantity 也不會大增



Level 1 - Economics - Factors of Production

Factors of Production

Cost of Production

Average Fixed Cost:
固定的，不會因生產較多而增加，所以生產我愈多，平均成本愈低

Average Variable Cost:
每件產品的浮動成本，一些 direct input，例如 raw material, labor。這些成本，起初會因數量增加而降低成本 (Economies of Scale)，但達到了一個最低點時，這個成本就會開始增加 (Diseconomies of Scale)

Average Total Cost:
Average Fixed Cost + Average Variable Cost

4.      Marginal Cost:
每生產多一件所增加的 Total Cost，由於多生產一件產品的成本是來自 Variable Cost 的，所以它的 curve effect 也是從 Average Variable Curve 而來的。

※Marginal Cost Curve 與 Average Variable Cost 及 Average Total Cost 的 intersection 就是他們的最低點

※Cost 是指 opportunity cost，包括了 explicit 及 implicit cost

Demand of productive resources
- Marginal Product: 使用多一件input所能多生產的數量
- Marginal Revenue Product: 每多用一件 input所能多賺的利潤 à Demand Curve of productive resources

Supply of productive resources

-Marginal Cost: 多使用一件input而放棄生產其他product，作息的時間 à Supply curve of productive resources

Level 1 - Economics - Market Efficiency

Market Efficiency

Demand and Supply Curve
-  Demand Curve: 代表 consumer 因享用多一件該物品的 benefit，當數量愈多，可獲得的 benefit 愈少，所以也稱為 Marginal Benefit (MB) curve
-  Supply Curve: 代表 producer 因生產多一件該物品的 opportunity cost，生產得愈多，放棄的其他生產愈多，opportunity cost 愈大，所以也稱為 Marginal Cost (MC) curve
-  Equilibrium: demand curve 與 supply curve intersect 的地方

Consumer and Producer Surplus

Consumer Surplus = benefit to consumer – price

Producer Surplus = price – opportunity cost to producer

Equilibrium à Maximizing the surpluses

Deadweight Loss

Over-production: 生產出比equilibrium 為多的數量 à MC > MB

Under-production: 生產出比equilibrium 為少量 à MB> MC

Reasons of Inefficiency / Deadweight loss

1.  Government Interventions
2.  Monopoly: profit maximizing but not surplus maximizing (discuss later)
3.  External Costs: producer 在計算生產成本時忽略了 social cost
4.  External Benefits: consumer 在購買時只考慮到自己的 benefit，而忽略了對其他人也有benefit
5.  Public Goods and Common Resources

Government Interventions

1.  Price Ceiling

2.  Price Floor

3.  Taxes

4.  Subsidies

5.  Quotas

Level 1 - Economics - Elasticity

Elasticity

Price Elasticity of Demand

% change in quantity demand / % change in price
If: > 1 à elastic;  if = ∞ à perfectly elastic
     < 1 à inelastic;  if = 0 à perfectly inelastic
     = 1 à unit elastic

Cross Elasticity of Demand

% change in quantity demand of good A / % change in price of good B
If +ve à they are substitutes;  if –ve à they are complement
 

Income Elasticity of Demand

% change in quantity demand / % change in income
If = 0 to 1 à necessities;  if > 1 à luxuries

Price Elasticity of Supply

% change in quantity supply / % change in price

Maximizing the Revenue

當price level令elasticity of demand = 1，Total revenue會最大，所以:
If elasticity > 1 à 減價;  if elasticity < 1 à 加價