Business Markets of The World Today – Economics Essay
Businesses and consumers are what determine most aspects of the markets in our world today. The supply and demand in different types of markets are what set prices. What people want is what the businesses will supply. This supply and demand has different effects on each type of market. Supply is how much the businesses will bring to a market to sell at different prices. This amount has a direct relationship with how much of that
product is demanded by the consumers. The demand is defined as the desire, ability and willingness of consumers to buy a product. A business will only supply things that are demanded by consumers. This is the only way a business can sell products and survive. “When people’s goals change, the amount of benefit they get from the good changes, and this will cause them to change the amount of the good they want to buy.”(Schnek, Robert) The law of demand states that, if prices are raised, then quantity demanded will decrease. Some reasons the demand will change are, consumer income, consumer taste, price of substitutes, and compliments. For example, if consumers’ income goes up, the demand will go up as well because they are able to afford more. When businesses supply goods, they take the demand and reasons for its changes in account. The law of supply states that when price goes up, quantity supplied increases as well. Supply of a product can change for a number of reasons; cost of inputs, productivity, technology, the number of sellers, taxes, subsidies, expectations, and government regulations. Businesses need to know both demand and supply so they can find the market equilibrium. This is where quantity supplied and quantity demanded is equal. In a perfect market this would be the price of the product. If the price is below market equilibrium, then there is a shortage of that product. If price is set above market equilibrium, then there is a surplus.
Market structure is the type of competition between different firms in the same type of industry. There are four different types of market structures found in the United States, pure competition, monopolistic competition, oligopoly, and monopoly. In pure competition, it is assumed that the business and consumer are both well informed, and that they are buying and selling the exact same product. There must be a large number of buyers and sellers, each buyer and seller must act independently, and anyone can enter the market or leave at anytime, in pure competition. A good example would be farming where everyone basically charges the same price for a banana. In this type of competition, market equilibrium will set the price of all products, and all firms involved set approximately the same price.
The next market structure is monopolistic competition. This is what mainly composes the American economic system. Monopolistic competition has all of the same requirements of pure competition, except for having the same products. This allows a business to vary a product to draw the consumers to their product rather than another’s product. The business will achieve this by advertising campaigns. For example, a shoe company might make their shoes more colorful and “in style” to attract attention to their product to differentiate their product from the competition’s. Still, however, in this market, businesses will charge a price that is close to market equilibrium, or else they won’t sell their products. They have more control over price than that in pure competition.
Third is an oligopoly in which very few large businesses dominate an industry. Coke and Pepsi are good examples of oligopolies because those are the major soft drink companies. In most oligopolies, when one of the companies does something new, or lowers prices, the other few companies will follow. Oligopolies have an immense amount of control over prices. They can either set them really high or low. Most of the time, the businesses will try to lower their prices as to stay competitive in their industry. The prices of an oligopoly, however, are usually higher than that of monopolistic competition. Since there is this competition, advertising is a huge part of an oligopoly.
The last type of market is a monopoly, in which one business dominates an industry, and there are no close substitutes. There are four types of monopolies. The first is a natural monopoly where the society is better with only one because it makes costs less. An example is an electric company; it just wouldn’t make sense to have two companies in one area. The second is a geographic monopoly, in which a business is a monopoly simply based on its location. It may be the only on in the area or for miles around, and the area may be too small to support two buisness of the same type. The next is a technological monopoly, where a business will come out with some type of new software, and no other firm has it, making the business with the technology a monopoly. The last monopoly is a government, where the business is owned by government, and is operated by them as well. In all monopolies, all the products are the same because only one firm makes them, and there is no need for advertising because there are no rivals. This makes monopolies able to charge what ever they want to for their product.
In the American system, the market that is most common is monopolistic competition. An example that shows this would be deodorant companies. One can buy almost any scent desired. There are some that aren’t tested on animals, or are organic, and then there are some that are for heavy sweaters, and athletes. In many magazines, there are ads for different brands of deodorants that do different things, “Secret” is a good example of a company that uses advertising. For a deodorant company to sell its products it has to keep its price relatively close to market equilibrium, or else people would use its many substitutes.
Business and consumers have a very important impact on supply and demand and prices in the different types of markets. Depending on the market, a business will advertise and set price to get consumers to purchase their products. All of these aspects put together make up the American system.