The Implications of

Market Pricing on
Economic Decision-
Making
A Surplus Forces the Price Down

Price per Quantity Quantity Surplus or Effect on

Pizza Demanded Supplied Shortage Price
(pesos) (millions) (millions)

150 8 28 Surplus 20 Falls

120 14 24 Surplus 10 Falls

90 20 20 Equilibrium Remains
the same
60 26 16 Shortage Rises
10
30 32 12 Shortage Rises
Role of Price
• Market prices serve as a signal to buyers and seller
about the relative scarcity of the good. A higher
price encourages consumers to find substitutes for
good or even go without it.
• Prices help people recognize market opportunities
to make better choices as consumers as producers.
• Market Reduce Transaction Cost
That’s why more store locate together downtown in
suburban malls.
Factors that impact market price
Some things that can affect market price are controllable,
while others are out of your hands. Factors that impact market
price include:
• Natural disasters (e.g. wars or attacks can limit supplies to manufacturers. Decreases
in necessary supplies can slow down the production of goods or
• World events business’s ability to offer services.

• Amount of wages paid to workers
• Decrease or increase in employment
• Pricing of luxury items versus necessities
can also affect the equilibrium price.
A decrease in employment or wages
may cause consumers being not able
to pay the same price as before
The demand for luxury is smaller
compare to the basic necessities, but
the price are almost high.
How price affects consumer behavior?
• Consumers look for substitute or other goods that can
replace in the long run.
• People may start recycling or alternative ways to reduce the
usage.
• Responding to these changing consumer preferences, firms
will develop other products-enabling more alternatives leads
to less demand in long term.
Market Structure in
Terms of Sellers,
Products, Pricing Power
and Others
 Market structure describes the important
characteristics of a market.
Market Features Questions to Ask

1. Number of buyers and sellers Are there many, only a few or just one?

2. Product’s uniformity across suppliers. Do firms in the market supply identical

products or are products differentiated
across firms?
Ease of entry into the market Can new firms enter easily or do natural
or artificial barriers block them?

Forms of competition among firms Do firms compete bases only the prices,
or are advertising and product
differences are also important?
Types of Market Structures
1. Perfect Competition- is described as a market structure
where no single seller or single buyers has power to
determine the price and the level of output in the
market.
• Perfect Competition has the following characteristics:
A highly competitive market structure with standardized
products- are perfect substitute
A form of market structure in which the price would be
the key factor in competing.
They are many buyers and sellers
They can easily enter or leave the industry.
Types of Market Structures
2. Imperfect Competition
• 2.1 Monopoly – a market structure characterized by a single seller
in the market-meaning sole supplier of a product with no close
substitutes.
Has more market power than does a business in another market
structure.
The least competitive market structure.
Has high barriers to entry-they are blocked
• 2.2 Monopsony – a market structure characterized by a single
buyer.
Low bargain power for sellers- being a single buyers that holds a
majority of power, monopsonies mean sellers are relatively weak
and have reduces bargaining power.
Types of Market Structures
2. Imperfect Competition
• 2.3 Oligopoly- is a market structure characterized by fewer
sellers producing similar and differentiated products with close
substitute.
Relatively easy but less free than perfect competition.
Modest control over price with no collusion
• 2.4 Monopolistic Competition –another example of imperfect
competition. A market structure that has the elements of both
competitive and monopolistic market.
It is competitive because it has numerous sellers and buyers in
the market that can freely enter and leave the market.
Quasi price maker through cooperation or collusion.
Market Type No. of Product Market Price
sellers Attribute Entry/Exit Taker/Maker

Perfect
Competition

Monopoly

Oligopoly

Monopolistic
Competition