Module 1

What interested me in this chapter was much everything about supply and demand. All the things that could shift supply like a change in the price of inputs or the change in price of substitute goods. It was surprising how demand shifted with complement goods. The books baseball ticket and hot dog reference made me think since I love baseball and the business behind the game. The difference between price-taking firms and price-setting firms is that price-taking firms make a product that is very similar to many on the market so the consumer controls the price since those similar products are all priced the same and the consumer isn’t willing to pay more for that product. So if the price-taking firm was to raise prices the demand for their product would drop significantly. With a price-setting firm they make a product that is unique in some way to rival products or there are only a few sellers of such product in the region. So managers of price-setting firms have the ability to set their own price for the product. The higher the price, the less of the product they will sell and visa verse. An example of a price-taking firm would be a company that makes paper towels or brews a domestic beer. Say if Budweiser started charging $4 more on every pack of beer they sell would drop the demand for their beer greatly and people would choose a substitute product like Coors or Miller. A price-setting firm would be any ski/snowboard company making equipment. As in snowboards they can be made with different materials, cut in different shapes for different terrain, or have different technology into the edges. All those factor in to how much the company can charge for that snowboard they produce. The four kinds of markets include a perfect competition market, a monopoly, a monopolistic competition market and an oligopoly. In a perfect competition a large number of small firms that sell an undifferentiated product with no barriers for new firms to enter. The firms in these markets are price-takers with no market power to control prices. In a monopoly a single firm, protected by some form of barrier to enter, produces a product, that there are no substitute goods for that product. It all depends on the price this company decides to charge for their product. A higher price and consumers are more willing to buy other products trying to find imperfect substitutes. But the existence of the barrier to enter allows the monopoly to raise its price without any economic concern of competitors and new firms. In a monopolistic competition, a large number of firms produce different products with no barriers to enter. These firms have some degree of market power making them price-setters instead of price-takers. But with the absence of barriers to enter the market any economic profit will eventually be bid away by new entrants. Finally in an oligopoly just a few firms produce most or all of the market output. So any one of the firm’s pricing policy will have a significant impact on sales of the other firms in the market. I have worked in restaurants since I was 18 and I have seen how they use marginal analysis to raise prices so profit is maximized.