UNIT 1 PRICE MECHANISM IN THE ECONOMIC SYSTEM

Transcription

1

2 1. Market in the economic system Market refers to the exchange of goods and services between buyers and sellers in a convenient way. This definition implies to 2 kinds of markets: 1. A place where buyers and sellers contact to trade, such as Thatien market in Bangkok or the Huaraw market in Ayutthaya 2. The contact between buyers and sellers via various channels, such as letters, telephone, fax, computer, etc.

3 1.1 General Characteristics of Market

4 - Do you think free market exists? - Can small and big companies equally compete in a free market? - Can weak and powerful countries equally compete in a free market? - Can modest and robust economies equally compete in a free market? - Give me an example of free market Internal Worldwide

5 1.2 Market Categorized by Characteristics of Competition Perfect competition market: It is a market that has real competition between buyers and sellers. Prices are set by buyers and sellers without influence from other factors Important characteristics of perfect competition market: a) A large number of buyers and sellers: None of them have any influence over prices of goods.

6 Even when buyers and sellers stop trading goods, it will not affect the prices of goods in the market. That is because each buyer and seller only buys and sells a small amount of goods compared to the total amount of goods in the market. And if a buyer or a seller is very big / powerful? Therefore, prices of goods in a perfect competition market are set by bargaining power of buyers and sellers, and the prices are accepted by both parties. And if a person or company is, at the same time, buyer and seller (an intermediator like Big C or Tesco)?

7 b) Homogenous products: Goods sold in the market are identical and can substitute each other Buyers will be satisfied with the same kind of goods from any sellers. In a free market, no need for advertisement, right? :p c) Perfect knowledge of the market situation: Buyers and sellers know the situation in the market well, such as knowing the prices of goods, production of goods, quality of goods and the need of goods.

8 Therefore, no sellers can sell the goods at a higher price than the market price. No buyers can buy goods at a lower price than the marker price. d) Perfect resource mobility: Trade contact must be convenient for buyers and sellers. Factor of production, such as labor, capital and machines, are allowed to be moved freely to produce at any location without restrictions. Focusing on the companies instead of people Recipe for disaster

9 e) Freedom of entry and exit: UNIT 1 PRICE MECHANISM IN THE ECONOMIC SYSTEM Firms can enter or leave an industry freely, without any limitation. Because people are pawns and not people!?! And are people disposable? Besides, there are no other barriers to entry; new investors can start the business and compete with existing business holders, and can also leave industry at any time. Again, recipe for disaster Example 1: new external investor from USA enters in the Ghanaian rice market and make the whole Ghana starve to death Example 2: new external investor from USA enters in the Jamaican bananas market and make the whole Jamaica starve to death. (watch Life and Debt, 2001)

10 That s how the criminal IMF and the criminal World Bank plunder and destroy 3 rd world economies and 1 st world economies too. Read the book The Shock Doctrine, by Naomi Klein ( The difference in prices of goods will last a short time until the same kinds of goods are sold at the same price. If any seller set a higher price, the buyers will buy goods from other sellers, thus forcing that seller to lower the price What if the new big seller decides to sell its products at artificially low prices? Clearly, the author of the book Economics 3 has no clue about Economic Dumping!

11 1.2.2 Imperfect competition market: It is the market in which buyers and sellers have influence in dictating prices or amount of products in the market. Most products are not identical, buyers can choose what the product with which they are most satisfied Nonsense. Same for perfect competition market Moreover, there are a few buyers and sellers in the market, so they can control the price of goods. They are also some other factors contributing to the imperfect competition market: Inconvenient transportation due to bad roads, etc

12 Types of imperfect competition market:

13 1.3 Factor Causing Monopoly UNIT 1 PRICE MECHANISM IN THE ECONOMIC SYSTEM

14