Price Makers and Price Takers

Demand may be price inelastic - Demand is not very responsive to changes in price. This means revenue will fall.

(Again, so far, remember that pricing in this case is set at the marginal cost level.)

Reason: Meeting buyers needs will increase demand. Higher demand=potential increase in profit and market share.

This is because other dealers in the market will get an opportunity to sell their products in the market. Customers can get products locally with the change. Some suppliers can still get a way of working around the pricing issue to increase their sales.

A sudden increase or decrease in the supply of a particular good is also known as a supply shock. A supply shock is an event that suddenly changes the price of a product or service. This sudden change affects the equilibrium price. The two types of supply shocks that exist are the Negative Supply shock and the Positive Supply shock. A negative supply shock, which is a sudden supply decrease, will raise the prices and shift the aggregate supply curve to the left. A negative supply shock can cause stagflation due to the combination of raising prices and the falling output. Meanwhile a positive supply shock, an increase in supply, will lower the price of a good and shift the aggregate supply curve to the right. A positive supply shock could be advancement in technology which most certainly makes production more efficient which thus increases output. For example a positive supply shock could be shown in the early 1990s when communication and information technology exploded which resulted directly in productivity increase, and an example of a negative supply shock would be that of the high oil prices associated with Arab oil embargo of the early 70s is the classic example of this occurrence. Any other factor could also produce this effect. Such as if

there are a number of different buyers and sellers in the marketplace. This means that we have competition in the market, which allows price to change in response to changes in supply and demand. Furthermore, for almost every product there are substitutes, so if one product becomes too expensive, a buyer can choose a cheaper substitute instead. In a market with many buyers and sellers, both the consumer and the supplier have equal ability to influence price.

Perfect competition is an idealised market structure theory used in economics to show the market under a high degree of competition given certain conditions. This essay aims to outline the assumptions and distinctive features that form the perfectly competitive model and how this model can be used to explain short term and long term behaviour of a perfectly competitive firm aiming to maximise profits and the implications of enhancing these profits further.

What is a monopoly? According to Webster's dictionary, a monopoly is "the exclusive control of a commodity or service in a given market.” Such power in the hands of a few is harmful to the public and individuals because it minimizes, if not eliminates normal competition in a given market and creates undesirable price controls. This, in turn, undermines individual enterprise and causes markets to crumble. In this paper, we will present several aspects of monopolies, including unfair competition, price control, and horizontal, vertical, and conglomerate mergers.

When faced with a downward sloping demand curve, a firm is said to have some degree of market power and will therefore produce to the point where marginal cost equals marginal revenue in order to maximize profit. In other words, if a firm is producing too much of a good and selling it at too low of a price point, the firm will scale back production in order to sell at a higher price.

pricing closely, as being out of step with the market can cause dramatic market share changes in a

Another quality of perfect competition that may be overlooked, but is vital to this industry is the ease of entry into the market. Start-up franchises within this market structure can begin operating with relatively low initial investments (compared to other industries). This is not the case where monopolies are concerned. There are numerous barriers to entry into monopolistic market structures, capital being one of the most prominent barriers.

Bargaining power of buyers: this is where buyers drive prices down. Again, this is driven by the number of buyers, the importance of each individual buyer to a business, the cost to them of switching from your products and services to another market those not cost them anything,

Again, with high entry barriers they are not bombarded with other firms coming and going from their market. (Samuelson and Marks, 2010).

Businesses are established with the sole reason to provide a product or service to a customer with the intend to make a profit. The amount of time, effort, and resources spend should generate a profit. Then, the profit depends “on its effectiveness in performing these activities efficiently, so that the amount that the customer is willing to pay of the products exceeds the cost of the activities in the value chain” (NetMBA.com).

This paper has three objectives. First, it aims to develop a simple framework that can