AOS 2 part 3 relative prices, resources, markets, business strategies Flashcards
(14 cards)
relative price
is the price of a product measured in terms of the price of another product
relative price connection to opportunity costs
links more directly to opportunity cost – instead of measuring the price in dollars, you measure it in units of the next best alternative
eg
The relative price of a Big Mac compared to Medium Fries is $4.00/$2.00 or 2:1.
In other words, for every Big Mac you buy, you give up the opportunity to buy 2 Medium Fries
Relative prices- what and how much to produce
think of icecream and yoghurt
When the relative price of a product ↑, businesses will ↑ production of that product (if everything else stays the same) in order to maximise profits
When the relative price of a product ↓, businesses will ↓ production of that product (if everything else stays the same) in order to maximise profits
relative prices and how to produce
When relative price ↑, ↓ use of higher priced factor of production to maximise supplier’s profits (eg machinary increases so they hire more staff instead)
When relative price ↓, ↑ use of lower priced factor of production to maximise profits
market power
the ability of a business to set or control the market price at which it sells its good or service.
perfect competition
many buyers and sellers, Lowest possible prices, most efficient resource allocation, highest possible impact on living standards
Best (but not completely correct) examples: the share market and property markets
monopolistic competition
a moderate number of sellers, Prices get higher as fewer suppliers, resource allocation less efficient, living standards a bit lower as consumers pay more for stuff
ex clothing manufacturers, retail trade, furniture, and
restaurants
oligopoly
relatively few but large sellers, Prices significantly higher, quite inefficient resource allocation, living standards worsened further
Good examples: supermarkets, banks and petrol companies
monopoly
one seller, Prices very high, resource allocation very inefficient, living standards the worst
Closest, but not pure examples: water companies, electricity transmission,
the NBN and airport operators
business strategies to increase profits
Price Discrimination
Multiple Branding
Anti-competitive behaviour
price discrimination (legal)
Business charges different prices to different customers
who are purchasing the same product
Charge higher prices to those who can afford to pay more Examples – new car sales (less wealthy people may haggle more); electricity and water
(discounts to many welfare recipients); tourists (eg
Maximise volume of sales – bulk discounts allow businesses to sell more products, even though they make less profit per unit of product sold
Examples – Costco; 10 pack box of 196 vs single can of 196 purchase (Em haha)
Maximise customers from certain demographics – seniors discounts or student discounts allow certain segments who may not have as much access to
money to be targeted so that products can be sold to them Examples – MYKI tickets, cinema tickets
multiple branding
A company has several different brands in the same market
This is perfectly legal and extremely common in Australia – used by companies that try to
dominate a catergory or market
eg quantas owns jetstar, quantas and q-link
anti competitive absolutley banned behaviour
It includes behaviour that is never allowed: two main examples
here:
Cartel activity – colluding with competitors by fixing prices; rigging bids to get new work; sharing markets (agreeing what part of the market each company gets); controlling output
Imposing minimum resale prices – suppliers cannot order retailers not to sell their products below a minimum price level
Anti-competitive behaviour Potentially banned behaviour
Co-operation among businesses – less formal than a cartel but businesses who join together to reduce competitionmight be breaking the law
Misuse of market power in a way that prevents other businesses from competing legitimately
ex Supermarkets
Bunnings re plants
Exclusive dealing – telling customers that they can only buy their products from your business or telling suppliers that they can only supply your business is not on
