ECONOMIC INFLUENCE ON FAMILY AND
CONSUMER
PN ZURONI MD JUSOH
DEPARTMENT OF CONSUMER AND RESOURCE MANAGEMENT,
FACULTY OF HUMAN ECOLOGY
MARKET STRUCTURE
• The market is a place where exchange of
goods and services through the purchase and
sale between the purchaser and manufacturer.
• Consists of:
 Perfect Competition
 Imperfect Competition
• Monopoly
• Monopolistic
• Oligopoly
Characteristics of the market
classification
• Number of firms exist
• Types of goods produced
• Freedom of entry and exit barriers and market
• The pricing of goods
• The existence of non-price competition such as
advertising, offer gifts, etc..
Perfect Competition
• The main features:
• Number of buyers and sellers more
 Each firm produces output in small quantities
 Therefore, every firm -price taker and does not
affect the market
 Each buyer uses a small portion of the output
market and can not influence market prices
Cont.
• The firm as a price taker
 Price is determined by supply and demand
balance
• This price will be taken by the firms as their sales
prices
• I.e. the concept of the firm as a price taker
– If seller - P f> P m
– If seller - P f <P m
no buyer
loss
Cont.
• Firms have freedom of market entry and exit
 There are no restrictions to entry and exit
• Eg. if there are huge profits from foreign firms enter
the market freely. Or vice versa
• Homogeneous output
 Output by each firm are the same and similar
(complete replacement)
 Therefore there is no firm has an advantage over
other firms
•
•
output do not charge high prices
output will be sold at the same price
 Non-price competition - eg. advertisement does
not occur
• Why? Output is homogeneous, the user gives
priority similarly on output
Cont.
• Sellers and buyers have perfect knowledge
 I.e. knows the ins and outs of the market (for
output and factors)
• Producers know how to get FOP (eg land) are
cheap and sell at high prices
• User output
• The result: there is no firm that dared to raise
(lower) the price of their output for fear of losing
buyers (less problems in the long term results)
Cont.
• Perfectness of factor mobility
 I.e. FOP (esp. Labor) to move freely to get good
returns
 There is no monopoly
 Mobility FOP occur until reaching a equilibrium
price
• It moved to the manufacturers that provide high
returns
• So long as there are different prices FOP
• When the FOP and outputs the same price, the
cost of mobility equal to zero
Monopoly
• Characteristics
• Availability of a seller and many buyers
 Industry in a monopoly market consists of a
firm. I.e. the firm = industry
 The firm has the power to determine prices and
output quantity
 Buyers do not have full authority to influence
market prices
Cont.
• Goods produced no close substitutes
 There are no close substitutes
 Goods can not be obtained from elsewhere
 Users had to use the goods even if the price is
expensive
Cont.
• Barriers to entry and exit
 Barriers to entry in the form:
• Restrictions in the form of legal protections
• Capital size requirements
• High technology development needs
 The firm is not easy out or shut down their
operations with as they please when losses
• E.g. government monopoly that provides basic
needs - e.g. a monopoly in the supply of water
service
Cont.
• Without market competition
 Because of a firm and its products have no close
substitutes => do not have non-price
competition - e.g. advertising and promotion
 Advertisement
• to introduce products
• To preserve the good name of the community
 Either identical or branded monopoly output =>
not an important issue because it is a single firm
Monopolistic competition
• A.k.a. monopolistic => have a lot of firms and a
variety of brand name goods
• Characteristics:
 The number of large firms
 Branded goods
 Freedom of entry and exit of the industry
 Influence on the price
 Non-price competition
Cont.
• The number of large firms
 Many firms but not by PPS
 Therefore, no firm affects the market
 The size of the monopolistic firms are
approximately the same
 Output produced by firms <output of the total
market
Cont.
• Branded goods
 Output => is physically more or less the same (in
terms of raw materials & mode of production)
 Firms a significant difference, in terms of:
•
•
•
•
•
Brand
Packaging
Advertising style
Services
Marketing effectiveness
Cont.
 Monopolistic output of a substitute is almost, but
not a perfect substitute
• Eg soap, cooking oil, beverages, footwear, clothing
• Ie differences in brand
• Freedom of entry and exit into the industry
 It's easier than the monopoly
 Firms should be able to produce the items in a
slightly different with the existing market
• The items also should be attractive and suitable
brands to compete in the market
Cont.
• Influence on the price
 Monopolistic influence on the price of goods
 The increase in prices => customer will buy a
cheaper replacement => so the sales will decline
(vice versa)
• But firms can not win ALL the goods is not a
substitute for proper
Cont.
• Non-price competition
 Firms producing basically similar
• Thus, firms need to highlight the differences in
terms of brand
– Ads, packaging, marketing effectively (eg special offers)
» Ie influence consumer perceptions and preferences of the items the
firm's brand
Oligopoly
• There are only a few firms in an industry only
 Firms influence each other (I.e. the action taken by
one firm can affect the other firms)
 Consists of:
• Perfect oligopoly:
– Have several firms that produce goods / services on the
same
– Industry eg petroleum, cement, bus, taxi
• Oligopoly is not perfect (imperfect):
– Consists of several firms that produce goods that vary in
quality, design and price
– Eg car manufacturing industry and the computer
Cont.
• Characteristics of oligopoly market
 Number of firms
• Consists of only a few firms
• Firms dominate the bulk of the market
– Thus, their interplay, especially on prices and output
 Type of goods
• Firms producing the same or nearly the same
– Ie perfect oligopoly - producing the same
– Ie oligopoly is not perfect - producing different goods in
terms of design and brand
Cont.
• Entry of new firms
 Not so easy.
 WHY? Barriers in terms of
• Capital needs to compete with firms that have
existed
• Factors holding patents
• Pricing
 Because each firm has influence, the market
price determined by the cooperation between
firms
• This collaboration enables high pricing
• Without co-operation - will not stabilize market
prices and low => thus less profit
• Thus, each firm must take into account the actions
of other firms (especially in determining prices and
output) => to maximize profits
Cont.
• Non-price competition
 The goods produced are the same or nearly the
same
• Thus, an important non-price competition
 Type the most important non-price competition Ads
• Most effective and dynamic
– Generate loyalty to the brand
– Expressed the assumption that the output of a particular
firm is better and the quality of other firms
INFLATION
 Circumstances in which the rise in prices and
factors affecting the production and supply
capacity by the user
 Continuing inflation will reduce purchasing power
due to rising prices are not followed by increases
in income
 The inflation rate measured by the Consumer
Price Index (CPI)
Country
1999
2000
2001
2002
2003
2004
2005
2006
2008
2009
2010
2011
Malaysia
2.8
1.7
1.5
1.9
1.1
1.3
3
3.8
5.4
0.6
1.7
3.2
CONSUMER PRICE INDEX (CPI)
• Changes in the average price of a goods and
services specified, which represents the
expenditure pattern of an average household in
the Peninsular, Sabah and Sarawak with a
particular year as the base year.
• price changes affect the well being of consumers
and users need a lot of money to make ends
meet.
• Price changes are measured using the consumer
price index (CPI) by the department of statistics
• Price Index is an index used to indicate the
average changes in retail prices of basket of
goods and services purchased by the family.
Limitations of the CPI
• Fixed basket of goods
 Contrast between the consumer
 Purchasing power
 Factors influencing the use of goods
• Changing the quality of goods, new goods
produced
Weighted Price Index(WPI)
 Formula
• WPI = P 0 X Weight X 100
Pa
 CPI (W) = ∑ WPI
∑ weighted
Contoh
• Calculate the WPI, the CPI,
Goods
P1
P0
Weighted
Price
index
A
1
1.5
5
150
B
1.5
3
3
200
C
2
1
2
50
TOTAL
WPI
The formula for calculating
the CPI
 Laspeyres and Passche
 Laspeyres formula, (in Malaysia)
• Comparing the cost of the base year basket of
goods measured in the new year with a group of
similar goods on the basis
• L = P (P 1, P 0, Q 0)
• LPI = ∑ P 1 Q 0 X 100
•
∑P0Q0
Cont.
• LPI = ∑ P 1 Q 0 X 100
•
∑P0Q0
 P1 = Price of goods in a current year
 P0 = Price of goods on the basis (basic year)
 Q0 = quantity of goods on the basis
The formula for calculating
the CPI
 Paasche formula,
• Comparing the cost of purchasing a new set of
items assessed in the new year with a group of
similar items valued at the base year.
• S = P (P 1, P 0, Q 1)
• SPI = ∑P 1 Q 1 X 100
•
∑P0Q1
 P1 = Price of goods in the current year
 P0 = Price of goods at the basis year
 Q1 = quantity of goods in the current year
Contoh
• Given the price and quantity of goods for the
base year and current year. Calculate the
Laspeyres and Paasche Price Index..
• Answer LPI = 212.5%
Type of
good
A
B
SPI = 220%.
price
1990
2
quantity
1990
10
4
15
price quantity
2000
2000
2
5
10
10
USE OF CPI
• The CPI is used to calculate the change in
consumer purchasing power
• Percentage change in the index used to
measure the rate of inflation and is also used to
 Consumer expenses
 Basic wage adjustment
 Picture of consumer purchasing power influence the quality of life
 Help plan the financial aspects
Value of Money
 Purchasing power which is the amount of goods
and services that can be purchased with a sum
of money.
 Formula:
• Money value =BPI- MVI X 100
BPI
• Money value Index= BPI X 100
CPI
• Inflation Rate = CPI - BPI X 100
•
BPI
Reasons for changing money values
 Inflation - changes in prices (inflation increase
with time)
 Can not wait - quick to feel satisfaction
» The time depends on the individual preferred
 Risk - the uncertainty of future
• - The economic situation may change.
Inflation
Definition
• The increase in general price levels, continuous
and not limited in the economy.
 Also referred to as a condition in which too much
money chasing few goods / services.
Inflation Rate
Reasons for inflation
• Excess demand (demand pull inflation)
• Price increases of factors of production (costpush inflation)
• Consumer perception
Who is effects of inflation?
• There is profit, no loss
 Except in the case of supply of inflation (as natural
as drought, increased oil prices)
• Profit from inflation - if the value of income / assets
grow faster than prices:
 Trade unions have the power
 Business owner
• Loss if the value of income / assets grew more
slowly than prices.
 Government employees with no union
 Fixed income.
Effects of Inflation
 Distribution of income
• The fixed income
– Losses because the value of money falls, the purchasing
power is also less.
• Borrower
– Make profit for debt is money down
– Same amount of money can buy less than without inflation.
• Lenders
– Losses because the amount of money paid back by the
borrower has gone down the power buy it.
Deflation (Unemployment)
 The population belongs to the people who work
but do not give any contribution to the output of
economic sectors. (Not employment)
 The unemployment rate
• = Number of unemployed

x 100%
Number of employment
 Level of full employment is achieved when a low
unemployment rate (2% - 4%)
Country
Malaysia
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
3
2.8
3.7
3.8
3.6
3
3.6
3.5
3.2
3.3
3.7
3.5
2011
3.1
Unemployment Effects
• Economic
 The lack of output of goods / services of a
country.
 Income per capita (national output is divided by
the total population) low population.
• Social
 Lost income - family instability (conflict).
 Lost jobs - crime, pollution (squatters)
Conclusion
• Perfectly Competitive Markets - characteristics
• Not perfect-competition market characteristics
 Monopoly
 Monopolistic competition (monopolistic)
 Oligopoly
Consumer Price Index (CPI)
• Calculation, use
 Value of Money - the calculation, the reasons for it
• change
 Inflation - definition, causes, effects of inflation
 Deflation - the definition of the effects.
END OF LECTURE
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