Market Balance in the Economy

MARKET BALANCE IN THE ECONOMY 1. Explain the characteristics of perfectly competitive markets and oligopoly markets a. Perfect Competition Market A perfectly competitive market is a market consisting of many sellers and buyers. Neither sellers nor buyers can influence market prices because what determines market prices is the market mechanism. A perfectly competitive market has several characteristics including: • many buyers and sellers: in a perfectly competitive market, buyers and sellers are considered price followers or price takers. This is what causes market prices to be datum or fixed prices regardless of the number of goods sold because the market mechanism determines prices through the interaction between demand and supply. • freedom to enter and exit the market: in a perfectly competitive market, there are no obstacles if sellers want to start a new business if it is considered profitable and close their business if it turns out to be detrimental. • products are homogeneous: in a perfectly competitive market, the products sold have the same quality and quantity. • sellers and buyers have perfect knowledge of the market: sellers and buyers in a perfectly competitive market know exactly the market conditions in terms of price levels and changes prevailing in the market. b. Oligopoly Market An oligopoly market is an imperfect competition market because in this market the number of sellers is not proportional to the number of buyers. This market has several certain characteristics or features. This is what differentiates it from other types of markets. The following are the characteristics of an oligopoly market: • there are many buyers in the market • there are only a few sellers • the products sold are homogeneous, but meet certain standards • there are barriers to market entry for new companies • the existence of interdependence • very intensive use of advertising. 2. Explain the laws of supply and demand and shifts in curves a. Shifts in demand and supply curves This curve shows that the demand curve and supply curve have shifted. On the demand curve, the DD curve shifts to the left to become D1D1. A shift in the demand curve to the left shows that a decrease in price does not cause consumers to increase the quantity demanded. This is of course influenced by various factors ranging from increasing prices of complementary goods, decreasing prices of substitute goods, decreasing people's income, decreasing people's taste for these goods, decreasing population, as well as consumer predictions regarding the price of these goods. Meanwhile, in the supply curve, the curve shifts to the right from the SS curve to the S1S1 curve. A shift in the supply curve to the right indicates that the price of a good increases so that the quantity of the good supplied also increases. This can be influenced by various factors, including an increase in the price of related goods, increased production costs, an increase in the number of competitors, an increase in taxes, not receiving subsidies, as well as rising consumer expectations for the price of these goods. This curve shows that the shift in the demand curve is greater than the b. The impact of this shift on the equilibrium price and quantity Shifts in the demand and supply curves will of course affect the equilibrium price and quantity. On the demand curve, a shift in the curve to the left from curve DD to D1D1 indicates that the price and quantity of goods demanded has decreased. From P1 to P2 and Q1 to Q2. Meanwhile, in the supply curve, the shift in the curve to the right from the SS curve to the S1S1 curve shows that the price and quantity of goods have increased. Because the shift in the demand curve is greater than the shift in the supply curve, the equilibrium quantity and price decrease. If the initial equilibrium point is at price P1 and quantity Q1, it drops to P2 and Q2. 3. Explain the meaning of elasticity in economic concepts a. What is elasticity? The law of supply and demand states that if there is a change in price, the quantity demanded and supplied will change. But the question is how big is the change? Because there are several types of products where by reducing the price just a little, sales will increase by a large amount. On the other hand, there are also products whose prices are reduced or increased, sales remain unchanged. So why do certain types of goods have different sensitivities to price changes? There are several factors that influence the magnitude of demand elasticity and supply elasticity. Knowledge of how much consumers react to price changes is very important. For producers, this knowledge is used as a guideline for how much they change the price of their products. And this is closely related to how much sales revenue he will get. In order to see how sensitive or reacting consumers are to price changes, economists will measure it with what is called price elasticity. Economists distinguish between elasticity of demand and elasticity of supply. b. Factors that influence the elasticity of demand are: • availability of substitute goods • the proportion of income spent on a good • goods category: basic needs or luxury needs • diversity of use of goods c. Factors that influence supply elasticity: • time required for production • durability of goods • mobility of production factors • ease of new producers entering the marketsupply curve. 4. explain the concept of a perfectly competitive market a. What is a market? The market is a place where buyers (demand) and sellers (offer) meet to carry out buying and selling transactions for goods or services. In practice, markets have different forms. This is influenced by market structure. Market structure is various things that can influence the behavior and performance of producers in the market, such as the number of producers, production scale and type of production. The market structure can be said to be competitive if the producers in it do not have the ability to influence the price and quantity of goods in the market. The weaker the producer's capabilities, the more competitive the market structure. There are three factors that influence the shape of the market, including the number of sellers and buyers, the nature of the product and the free entry and exit of producers in the market. One form of market is a perfectly competitive market. b. What is a perfectly competitive market? A perfect competition market is a situation where sellers and buyers cannot influence the price level, so that the price prevailing in the market is purely the result of the interaction between supply and demand. The characteristics of a perfectly competitive market are: • there are many buyers and sellers, but they cannot influence the price in the market. • goods and services sold are homogeneous and cannot be differentiated • producers are free to enter and exit the market. • can find out market conditions easily • free to make decisions Based on the explanation above, the following is an analysis of the answers which are included in the characteristics of a perfectly competitive market: • there are many buyers, but they are unable to influence the market price (true) • there are many sellers, but sellers do not have the power to influence prices (true) • goods and services traded are homogeneous (true) 5. Explain the meaning of total acceptance curve a. What is total acceptance curve The total revenue curve is the income obtained from product sales. Perfect competition markets and monopoly markets have different total revenue curve shapes. b. Perfect Competition Market The total revenue curve in a perfectly competitive market is in the form of an ascending straight line starting from zero, because of the assumption that buyers and sellers in a perfectly competitive market are price followers. As an example : Mr. Agus produces a quantity of milk (Q) and sells each unit at the market price P. Then Mr. Agus's total income is P x Q. If one gallon of milk is sold for $3, and Mr. Agus sells 100 gallons, then his total income is $300. Because Pak Agus is a small part of the world's milk market, he takes the price determined by the market. So it can be said that the price of milk on the market is not influenced by the amount of milk produced and sold by Mr. Agus. Even though Pak Agus will double his production, the price of milk remains the same, but the income he receives will double. As a result, total revenue is proportional to the number of products. c. Monopoly Market The total revenue curve in a monopoly market initially rises, then reaches a maximum point until finally decreasing. A monopolist is a company that is the sole seller in its market. A monopoly company can determine prices completely without any competition from other companies. as the sole producer in its market, economic actors may experience a decrease in demand. If producers set prices that are too expensive, consumers will buy fewer goods. The company's income in a monopoly market will change if the amount of output increases by 1 unit. This happens because the price for all units sold must be reduced if the company increases its production units. For example: A company produces 1 liter of water, and sells it for $10. If the manufacturer produces 2 liters of water, then the company must reduce the selling price to $9. Furthermore, if it produces 3 liters of water, the company must reduce the selling price to $8. And so on.