Lesson 2.

4: Market Structure
Market Structure
→ refers to the competitive environment in which
buyers and sellers operate.
Competition: refers to rivalry among sellers in the
market.
Market: is a situation of diffused, impersonal
competition among sellers who compete to sell their
goods and among buyers who use their purchasing
power to acquire the available goods in the market.
Market is defined as a place or point at which buyers
and sellers negotiate their exchange of well-defined
products or services.
There are varying degrees of competition in the market
depending on the following factors:
• Number and size of buyers and sellers
• Similarity or type of products bought and sold
• Degree of mobility of resources
• Entry and exit of firms and input owners
• Degree of knowledge of economic agents
regarding prices, costs, demand, and supply
conditions
Competition and Market Structures:
Perfect Competition:
➢ Pure Competition
Imperfect Competition:
➢ Monopoly
➢ Oligopoly
➢ Monopolistic Competition
Pure Competition
→ a market structure where there are many
buyers and sellers. Since many participants,
none of them can cause changes in prices
▪ A very good example is the Metro Rail Transit (MRT)
whose service is considered by many as poor and
inappropriate.
Oligopoly
→ a market structure where there are few sellers.
▪ Competitors in this kind of a structure collude and
are called “players.” Either they play as one team
or they play in different teams. There are few
sellers that prefer to make alliances than to
compete.
▪ In a duopoly, where there are two (2) sellers, it is
best if they work together rather than compete
with each other’s; or they can just work together
and pretend they are competing with each other.
▪ The problem here is the existence of barriers to
entry where a competitor finds it hard to enter the
industry because of the initial capital requirement.
Although it is good idea to be able to have more
sellers and producers; the task for the players to
enter the industry is extremely difficult.
Monopolistic Competition
→ a market structure consists of different
products with many sellers.
▪ Products belonging to the same industry seem to
be identical, but they are not.
▪ The common problem that a monopolistic
competitor faces is how to be unique and different
from its competitors.
Types of Markets and their Characteristics
Type Seller Product Entry of Example Common
New
Firms
Problem

and quantities of goods and services. “Price

Pure Many Homegenous Free Sugar, Profit / Market
Takers” Competition Bangus, Share
Rіce

The usual problem that a competitor face are: Monopoly One One No MORE, Improvements of
▪ How to survive and how to get a fair market share. ILECO, products/services
CAPELCO
in order to be competitive, one has to adjust the
size of his/her business to achieve the most Oligopoly Few Differentiated Restrіcted Oil/Fuel
Telecom
High capital
requirement
efficient plant size. Aіrlіnes

▪ Maintening the profit. Total Revenue should be Monopolistic Many Differentiated Free Shampoo Distinguishing
greater than Total Cost. Competition quality

TR = Price X Quantity and TC = Total Fixed Cost + Total

Variable Cost.

Total Fixed Cost include those cost incurred that do not

change as you increase output.
Total Variable Cost icludes those costs incurred that
vary as you increase output.

Monopoly
→ a market structure where there is only one
seller that represents the whole industry. “Price
Maker”

▪ The usual problem that a competitor faces is

improvement of its products or services. This
problems occurs because the monopolist lacks the
foresight to become efficient due to the absence
of competition.
Labor supply
→ is comprised of the available labor force who
are willing and able to work, and awaiting
deployment. These include people who are
willing to work for a given period of time, such
as those who finished their education, those
who were unemployed from the past year or
cycle, and those who arrived from abroad
and are willing to work locally.
Labor demand
→ refers to the industry’s total available job
vacancies from the previous cycle or year up
to the present. Because of job mismatch, there
is a strong possibility that not all slots will be
filled. As such, the lag will be added to the
next batch.
Wages
→ are payments made in exchange for the time
and effort exerted or given by an individual
who was able to either produce a good or a
service. The total output refers to the number
of workers multiplied by their corresponding
individual yield.
Total output
→ refers to the number of workers multiplied by
their corresponding individual yield.
ANALYSIS OF DEMAND AND SUPPLY FOR LABOR
Figure shows an increase in Labor Supply from SL1 to
SL2, while demand for labor remains constant. A shift of
labor supply to the right results in decreased wage per
hour from P300 to P250 and increased quantity from 24
million to 30 million laborers.
This will happen if there are lot of recent
graduates looking for jobs, a lot of unemployed
workers who were not deployed during the past cycle
or year, or an increase of returning workers who have
no contracts yet from abroad and are willing to work
locally. Also, the industry did not expand, meaning
there are no additional jobs because there were no
additional businesses established and existing
businesses did not expand.
Figure shows a decrease in labor supply from SL1 to SL2
while demand for labor remains constant. A shift of
labor supply to the left results in increased wage per
hour from P275 to P300 and decreased quantity from
30 million laborers to 24 million laborers.
This may happen if there are less college
graduates and the labor force declines while demand
for labor remains constant. Those who enter as college
freshmen during academic year 2015-2016 will
graduate after four years. By year 2020 to 2022, there
will be fewer graduates because of the
implementation of the K to 12 program. This means the
next batch of additional labor supply, all things being
constant, will be after 2022.
Figure shows an increase in labor demand
from DL1 to DL2 while supply for labor remains
constant. A shift of labor demand to the right results in
increased wage per hour from P300 to P350 and
increased quantity from 24 million laborers to 30 million
laborers. This may happen if industry expands while
labor supply remains unchanged. If our labor cost
remains to be one of the cheapest among Asia-Pacific
Economic Cooperation (APEC) member-countries,
then it is possible that we will be the most preferred
country for outsourced labor.
Figure shows a decrease in labor demand
from DL1 to DL2 while supply for labor remains
constant. A shift of labor demand to the left results in
decreased wage per hour from P350 to P300 and
decreased quantity from 30 million laborers to 24
million laborers.
This may occur during an economic recession
where business leave the industry or shut down.
Figure shows demand for labor and labor
supply with an equilibrium wage of P300 and quantity
of labor is 2 million. If the government sets a minimum
wage of P350 which increases the wage by P/50 hour,
this will create unemployment computed as follows: 3
million supplies for laborers at P360 wage but the
demand is only for 1 million laborers. This will lead to 2
million unemployed people.
The previous example shows that although an
increase in the basic wage is supposed to bring about
a better life, it instead brings about negative
consequences such as unemployment.
Lesson 2.6: Supply – Demand and
Philippine Economic Problem
THE PHILIPPINE PESO AND THE FOREIGN EXCHANGE
Foreign exchange
→ is the conversion of Philippine currency into
and international currency, such as the
American dollar. A stronger dollar means
either international currency’s economy is
getting stronger, or the local currency’s
economy is getting weaker. A weaker dollar
mean either the local currency is getting
stronger or the international currency is getting
weaker. Since the American dollar is used for
foreign transactions, a sudden increase in its
supply will have an inverse effect on the dollar-
to-peso ratio, resulting in the dollar becoming
weaker. If supply for dollar decreases due to
less remittances, then the foreign exchange
will rebound against the peso and the dollar
will regain its strength.
There are reasons for devaluating the peso
against the dollar. The value of the dollar against the
peso is dependent on the supply and demand for
dollars. Dollar supply comes from dollar holders like
OFWs, or foreign counterparts whose objective is to put
in their dollars (money market of a specific country)
where they see profitable. If the dollar is in demand in
a country like the Philippines, then its value will
appreciate against the peso and dollar holders will see
this as a signal to pour in the currency to take
advantage of the high exchange rate and withdraw
the same if the exchange rate is low.
When do we experience an appreciating
peso against the dollar? In the Philippine setting, we
experience a cycle where there is an influx of dollars
during the last quarter of every year (under ceteris
paribus) when OFWs remit their earnings to their
families in the Philippines. If the demand for dollars
does not change, then the value of the dollar will
decline or the value of the peso against the dollar will
appreciate.
THE PHILIPPINE HOUSING SHORTAGE AND THE REAL
ESTATE BOOM
single), it is a form of investment, and most of all, it
gives the feeling of security.
According to the National Statistics Coordination
Board (NSCB), employment gross revenue generated
from constructing housing units for year 2010 was
around P326 billion and value added from real estate
activities amounted to P114 billion.
At present we still have low-cost housing units,
condominiums, and single-detached houses. All have
different if the government tries to put a price ceiling
on low-cost housing units.
Figure shows a unitary elastic demand
(change in Price = change in Quantity) and a relatively
inelastic supply (change in Price > change in
Quantity). Let us say the government sets a price
ceiling of P400,000 at 25 years to pay which is quite
affordable. If there are 3 million people who can afford
to buy these units and there are only 1 million units
available (Qd for low-cost houses > Qs for low-cost
houses), the result is a shortage of low-cost houses
amounting to 2 million units (Qs 1,000,000 – Qd
3,000,000).
➢ INVESTMENTS
➢ RENTALS
➢ MINIMUM WAGE
➢ TAXES
INVESTMENTS
→ a product that people buy with the hope that
they will be beneficial or will generate income
in the future.
Classification of Investment:
➢ long-term investment (buying a property or
engaging in real estate)
➢ short-term investment (savings and time
deposits)
• Stocks
• Bonds

For the past five years, the Philippine economy

has been experiencing a boom in the real estate
industry. Some of the reason behind this phenomenon
are the affordability of the condominium units to the
upper middle class, an increase in population, and the
awareness of the proximity of these units to places of
work, schools, malls, and transportation terminals.
Owning a condominium is considered an
indication of success, self-actualization, and one’s
gratification. Having your own housing unit is the
closest you can get in having a family (if you are still