APPECO LESSON 5 Flashcards
Refers to a group of companies that are related in terms of their primary
business activities. In modern economies, there are dozens of different
industry classifications, which are typically grouped into larger categories
called sectors.
Industry
Companies are classified based on their largest source of revenue.
Industry
E.g., A car manufacturer may have a financing division, but since most of its
revenue comes from selling cars, it is still classified as an automobile company
Industry
Individual companies are generally classified into industries based on their
largest sources of revenue.
Industry
TYPES OF INDUSTRIES
- PRIMARY SECTOR
- SECONDARY SECTOR
- TERTIARY SECTORS
: Uses natural resources (e.g., farming, fishing, mining).
Primary Sector
: Manufacturing & construction (e.g., automobile
production).
Secondary Sector
: Services (e.g., retail, banking, tourism).
Tertiary Sector
is the study of firms, industries, & markets. It aims to
aid businessmen & economists in their decision-making in areas such as
research & development, target markets, & advertising strategies. An issue in
industrial economics is assessing how competitive a market is
Industrial Economics
This field examines how businesses compete & how market structures shape
industries.
Industrial Economics
Is identified as the prime motivator of economic activity. Buyers compete to
gain the benefit of a good or service, just as sellers compete to earn profit.
Competition is the regulator of economic activity, ensuring that sellers provide
high-quality goods at reasonable prices.
Self-Interest
Self-Interest
becomes greed if it becomes ____.
excessive
5 Principles in the Formation of Competitive Markets
- THE PROFIT MOTIVE
- THE PRINCIPLE OF DIMINISHABILITY
- THE PRINCIPLE OF RIVALRY
- THE PRINCIPLE OF EXCLUDABILITY
- THE PRINCIPLE OF REJECTABILITY
: Profits are earned when firms gain revenue which exceeds
the costs of production. Additional studies in economics
identified to two types of profit. First is Normal Profit.
Normal profit happens when revenues equal costs. Second
is Supernormal Profit. This happens when revenues
exceed costs.
(Firms earn profit when revenue exceeds cost)
The Profit Motive
: This is the diminishing of stocks of goods
as the good is continuously purchased. Prices will be
driven upward for it shall follow the Law of Demand where
a product’s price increases as it nears depletion of it stocks.
Higher prices create an incentive for the producers to
increase production.
(As goods are bought, stocks decrease, raising prices)
The Principle of Diminishability
: Consumers are forced to compete with obtain the
benefit of the good or service. It’s related to the Principle of
Diminishability & it’s another way to explain how
consumers compete when stocks of a good nears
depletion.
(Consumers compete to obtain goods)
The Principle of Rivalry
: This is the exclusion of consumers from
gaining the benefit of a product. This is necessary to
prevent free-riders. Free-Riders are people who enjoy free
stuff & will only consume free stuff even if they can do a
purchase. These are the people who are unwilling to pay
or sometimes are unable to pay. Free-Riders can prevent
the formation of fully fledged markets.
(Prevents free-riders from benefiting without paying)
The Principle of Excludability
: Consumers can reject goods if they do not
need nor want them. A shopper in a supermarket may not
pay for a product in his/her shopping basket if she does not need nor want it. & supermarket workers cannot expect for
a shopper to pay for a product they placed in her basket if
the shoppers does not need nor want it.
(Consumers can refuse unwanted goods)
The Principle of Rejectability
Is best defined as the organizational & other characteristics of a market. We
focus on those characteristics which affect the nature of competition & pricing.
Market Structures
Traditionally, the most important features of market structure are: (7)
- The no. of firms
- The market share of the largest
- The nature of costs
- The degree to which the industry is vertically integrated
- The extent of product differentiation
- The structure of buyers in the industry
- The turnover of customers
There are six market structures:
Pure Competition,
Monopolistic Competition,
Oligopoly,
Monopoly,
Monopsony, &
Duopoly
Or Perfect Competition, is a market structure where buyers consumers dictate
prices due to profit motives. Producers or sellers produce generic products,
making them homogenous & perfect substitutes for others. E.g., rice farmers
produce the same product, rice. This type of competition is crucial in the market
structure.
I. Pure Competition
Or Imperfect Competition, occurs when multiple sellers act independently,
producing homogenous products that can be perfect substitutes of one
another, as seen in the bath soap industry.
II. Monopolistic Competition
The oil industry in the Philippines has a price agreement among its sellers, with
many buyers & few independent sellers. The products are perfect substitutes,
& the price range is influenced by the chief players. This ensures that prices
remain consistent & competitive.
III. Oligopoly
This happens when there are many buyers & only one seller. There are no
eligible substitutes for the product that they sell. The seller here normally
dictates the price. Only the government can intervene here through laws &
regulation. An example of this is the Electric industry. Meralco is the sole seller
of the Electricity here in Metro Manila.
IV. Monopoly
This happens when there are many sellers but there is only one buyer of that
product. This market structure is quite rare. An example of this is the
relationship of Meralco to the Power Producers. Meralco is the sole buyer of
Electricity here in Metro Manila.
V. Monopsony
In this market structure, there are many buyers & only two sellers. This is
observed in the Philippines in the potable water industry in Metro Manila.
Metropolitan Waterworks & Sewerage System (MWSS), & Maynilad Water
Services Inc. are the two major sellers of potable water.
VI. Duopoly
____ markets have Product Homogeneity & Perfect
Information, where all firms’ products are perfect substitutes. Perfect
Information provides all relevant information about products & market
functioning
Pure/Perfect Competition
____ markets have Product
Differentiation & Selective Information, where sellers heavily differentiate
products. Selective Information is when sellers don’t provide all necessary
information about the product. Advertising plays a crucial role in this type of
market, where sellers compete for consumer attention & often focus on product
traits rather than negative effects.
Monopolistic/Imperfect Competition
Economic activity combining four factors of production to produce goods &
services satisfying consumers involves business firms converting inputs into
outputs, thereby converting inputs into satisfying outputs.
Production
THREE KINDS OF PRODUCTS
- GOODS
- SERVICES
- IDEAS
– These are tangible products
- Goods
– They can be perceived by the five senses.
- Goods
These are intangible products butt are experienced.
Services –
These are intangible products but they indirectly satisfy a
person.
Ideas –
The ____ process is a systematic
approach to product processing,
involving the use of various resources
to create a final product. It involves
three parts: Inputs (raw materials
used for production), Process
(phases of raw materials required for
finalization), & Output (final product).
Inputs refer to the raw materials used
for the production process, while Process involves the final product. Some production
processes may result in byproducts beyond the desired final product.
IPO
– This type of technology uses more labor resources than capital in
production, focusing on manpower over machines & equipment.
An example is the agricultural sector, where human effort is valued
more than machinery.
(manual farming)
Labor Intensive
– ____ industries, such as oil production, refining,
telecommunications, & transports, use more capital resources
than labor in the production process, utilizing more machines &
equipment.
(machines, automation)
Capital Intensive
: An example of this is land.
- Fixed Capital
: This is continuously used but for only one usage i.e. gas
- Circulating Capital
: These are raw materials that are to be used to produce
the final product.
- Productive Capital
: This is capital used not for the purpose of production but
for other purposes as the entrepreneur wishes.
- Lucrative Capital
: This is capital used for the purchase of finished goods
for use in the production process.
- Consumption Capital
: These are the machines or equipments that are or can be used
many times.
- Free Capital
: This is capital to be used for a specific & specialized
purpose.
- Specialized Capital
: An example of this are seeds.
- Agricultural Capital
: This refers to heavy equipments & buildings
- Industrial Capital
This refers to mobile vehicles used all throughout the
production process.
- Commercial Capital:
: This refers to anything sued in the production in monetary
form.
- Financial Capital
Is an individual who runs a small business, taking on the risky & rewards of a
venture, idea, or good or service offered for sale. They are often seen as
business leaders & innovators, playing a crucial role in any economy.
Entrepreneurs have the skills & initiative to bring good ideas to market & make the right decisions to make the idea profitable. The reward for the risks taken
is the potential economic profits the entrepreneur could earn.
Entrepreneur
In the production process, ____ input their ideas, properties, time, &
talents, utilizing other factors to create a satisfying good or service. They
decide on products, materials, processes, & technology type. Decisions in
production are based on the ability to vary the quantity of inputs, which are
fixed & variable. In the short run, there is at least one fixed input, requiring
changes in output to be made through variable inputs. In the long run, all inputs
are considered variable for a period of time.
Entrepreneur
