Market Dynamics and Economic Indicators

Posted on Nov 30, 2024 in Economy

Item 6: Market Concepts

Market Characteristics

  • Concentration: Absence of dominant businesses or vendors.
  • Price Influence: Perfectly competitive (no influence) vs. imperfectly competitive (significant influence).
  • Homogeneity: Interchangeable products in a homogeneous market.
  • Competition Intensity: Level of competition among sellers and trade policies.
  • Transparency: Buyer’s access to transaction price information.
  • Entry/Exit: Ease of entering or leaving the market.

Market Types

Perfect Competition

All goods and services are exchanged for market-fixed prices based on supply and demand. Easy market entry due to lower production costs and small investments. Homogeneous products.

Stages
  1. Growth: Companies enter the market with profits.
  2. Saturation: Increased supply leads to price reductions.
  3. Stagnation: Excess supply reduces profits, firms exit.
  4. Stabilization: Reduced competition stabilizes profits.

Imperfect Competition

Companies influence prices due to fewer firms.

Models
  • Monopoly: Single company controls production and pricing. Sources include exclusive resources, legal rights (patents, concessions), service nature, and cost advantage.
  • Oligopoly: Few companies share the market. Characteristics include few companies, homogeneous products, and significant capital investments. Operation involves non-collusion (price wars, price leadership) or collusion (price fixing, market division).
  • Monopolistic Competition: Many companies with differentiated products. Operation relies on advertising and brand loyalty.

Item 7: Labor Market

Factors Affecting Demand

  1. Wage Level: Higher wages lead to fewer hires.
  2. Product Price: Higher prices can increase hiring due to higher profits.
  3. Productivity: Efficient workers are more desirable.

Factors Affecting Supply

  1. Wage Level: Higher wages attract more workers.
  2. Population: Larger population means more potential workers.

Wage: Determined by supply and demand. Minimum wage set by government and social partners.

Employment Policy

Aims to reduce unemployment through plans and procedures managed by the labor ministry.

Indicators

  • Working-age population: Individuals over 16.
  • Working population: Employed and those seeking employment.
  • Idle population: Students, retirees, pensioners.
  • Activity rate: Workforce to working-age population ratio.
  • Employment rate: Employed population to workforce ratio.

Statistics

  • Social Security: Affiliation numbers.
  • Ministry of Labor: Quarterly surveys on occupation areas and unemployment.
  • National Institute of Statistics: Labor Force Survey.
  • INEM: Unemployment information.

Unemployment Types

  1. Cyclical: Related to economic cycles.
  2. Seasonal: Due to seasonal labor demands.
  3. Structural: Mismatch between job requirements and worker skills.
  4. Frictional: Voluntary unemployment for personal reasons.

Item 8: Market Failures

Negative consequences of market performance.

  1. Economic Cycle Volatility: Fluctuations affect employment and wages.
  2. Public Goods: Goods and services not profitable for the private sector but necessary for public interest.
  3. Externalities: Economic activities affecting third parties (negative: pollution; positive: technological development).
  4. Imperfect Competition: Leads to price and quality abuses.
  5. Unequal Income Distribution: Market economy reflects income levels, not necessarily equitable distribution.

Welfare State

Mixed economy with basic resource recognition.

Spanish Welfare State

  • Health: Universal healthcare access.
  • Education: Right to education until 16.
  • Housing: Right to decent housing.
Benefit Types
  • Universal: Available to all.
  • Contributory: Based on social security contributions.
  • Social: For low-income groups.

Future Challenges

  • Control public spending.
  • Flexible labor market.
  • Control inflation.
  • Privatize public enterprises.

Item 9: Macroeconomics

Indicators

  • GDP: Measures production.
  • CPI: Measures inflation.
  • Participation Rate: Indicates employment levels.

Importance of Indicators

  • Inflation: Affects purchasing power and economic stability.
  • Unemployment: Impacts household income and consumption.
  • Economic Growth: Increases production, profits, and government revenue.

GDP (Gross Domestic Product)

Characteristics

  1. Monetary standard (e.g., Euro).
  2. Declared activities only.
  3. Final goods only.
  4. Measured within country borders.

Calculation Methods

  1. Spending on final goods and services.
  2. Value-added method.
  3. Income method.

Nominal vs. Real GDP

Nominal: Calculated at current prices. Real: Adjusted for inflation.

GDP Limitations

  • Excludes underground economy.
  • Does not measure non-monetary activities.
  • Does not account for pollution.
  • Does not assess quality.
  • Does not measure wealth distribution.

Inflation

Causes

  1. Demand Inflation: Increased consumption, business investment, or public spending.
  2. Cost Inflation: Rising resource prices, wages, or capital costs.

Consequences

Loss of purchasing power, benefits debtors and state, harms savers and exporters.

Measurement

CPI (Consumer Price Index): Weighted average of goods prices. Harmonized CPI: For international comparisons.

Economic Reality

  1. External Shocks: Wars, climate change.
  2. Internal Market Forces: Supply, demand, technological innovation.
  3. Public Sector Intervention: Economic policies for recovery.