ECONOMIC INFLUENCE ON FAMILY AND CONSUMER 

PN ZURONI MD JUSOHDEPARTMENT 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  no buyer– If seller - P f <P m  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

P a 

CPI (W) = ∑ WPI ∑ weighted 

Contoh

• Calculate the WPI, the CPI,

Goods P1 P0Weighted Price

indexWPI

A 1 1.5 5 150

B 1.5 3 3 200

C 2 1 2 50

TOTAL

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

•              ∑ P 0 Q 0 

Cont.

• LPI = ∑ P 1 Q 0 X 100

•              ∑ P 0 Q 0

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

•              ∑ P 0 Q 1

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% SPI = 220%.

Type of good

price 1990

quantity 1990

price 2000

quantity 2000

A 2 10 2 5

B 4 15 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 

Reasons for changing money values 

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 (cost-push 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 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Malaysia 3 2.8 3.7 3.8 3.6 3 3.6 3.5 3.2 3.3 3.7 3.5 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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