ECONOMIC%20INFLUENCE%20ON%20FAMILY%20AND%20CONSUMER

1

• ECONOMIC INFLUENCE ON FAMILY AND CONSUMER 
• PN ZURONI MD JUSOH
• DEPARTMENT OF CONSUMER AND RESOURCE MANAGEMENT,
• FACULTY OF HUMAN ECOLOGY

2
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

3
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..

4
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

5
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 fgt P m ? no buyer
• If seller - P f ltP m ? loss 

6
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

7
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)

8
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

9
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

10
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

11
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

12
Cont.

• Without market competition
• Because of a firm and its products have no close
  substitutes gt 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 gt
  not an important issue because it is a single
  firm

13
Monopolistic competition 

• A.k.a. monopolistic gt 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

14
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 ltoutput of the total
  market

15
Cont.

• Branded goods
• Output gt 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

16
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

17
Cont.

• Influence on the price
• Monopolistic influence on the price of goods
• The increase in prices gt customer will buy a
  cheaper replacement gt so the sales will decline
  (vice versa)
• But firms can not win ALL the goods is not a
  substitute for proper

18
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

19
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

20
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

21
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 gt thus less profit
• Thus, each firm must take into account the
  actions of other firms (especially in determining
  prices and output) gt to maximize profits

22
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

23
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
24
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.

25
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

26
Weighted Price Index(WPI)

• Formula
• WPI  P 0 X Weight X 100
• P a 
• CPI (W)  ? WPI
• ? weighted 

27
Contoh

• Calculate the WPI, the CPI,

Goods P1 P0 Weighted Price index WPI
A 1 1.5 5 150
B 1.5 3 3 200
C 2 1 2 50
TOTAL
28
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 

29
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

30
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

31
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
32
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

33
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

34
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.

35
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.

36
Inflation Rate
37
(No Transcript)
38
(No Transcript)
39
(No Transcript)
40
Reasons for inflation 

• Excess demand (demand pull inflation)
• Price increases of factors of production
  (cost-push inflation)
• Consumer perception

41
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.

42
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.

43
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
44
(No Transcript)
45
(No Transcript)
46
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)

47
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.

48
END OF LECTURE

• THANK YOU