Lesson 2.

4: Market Structure
Market Structure ▪ A very good example is the Metro Rail Transit (MRT)
→ refers to the competitive environment in which whose service is considered by many as poor and
buyers and sellers operate. inappropriate.
Competition: refers to rivalry among sellers in the Oligopoly
market. → a market structure where there are few sellers.
Market: is a situation of diffused, impersonal
competition among sellers who compete to sell their ▪ Competitors in this kind of a structure collude and
goods and among buyers who use their purchasing are called “players.” Either they play as one team
power to acquire the available goods in the market. or they play in different teams. There are few
Market is defined as a place or point at which buyers sellers that prefer to make alliances than to
and sellers negotiate their exchange of well-defined compete.
products or services. ▪ In a duopoly, where there are two (2) sellers, it is
best if they work together rather than compete
There are varying degrees of competition in the market with each other’s; or they can just work together
depending on the following factors: and pretend they are competing with each other.
• Number and size of buyers and sellers ▪ The problem here is the existence of barriers to
• Similarity or type of products bought and sold entry where a competitor finds it hard to enter the
• Degree of mobility of resources industry because of the initial capital requirement.
• Entry and exit of firms and input owners Although it is good idea to be able to have more
• Degree of knowledge of economic agents sellers and producers; the task for the players to
regarding prices, costs, demand, and supply enter the industry is extremely difficult.
conditions Monopolistic Competition
→ a market structure consists of different
Competition and Market Structures: products with many sellers.
Perfect Competition:
➢ Pure Competition ▪ Products belonging to the same industry seem to
Imperfect Competition: be identical, but they are not.
➢ Monopoly ▪ The common problem that a monopolistic
➢ Oligopoly competitor faces is how to be unique and different
➢ Monopolistic Competition from its competitors.
Pure Competition Types of Markets and their Characteristics
→ a market structure where there are many
buyers and sellers. Since many participants, Type Seller Product Entry of Example Common
none of them can cause changes in prices New
Firms
Problem

and quantities of goods and services. “Price

Pure Many Homegenous Free Sugar, Profit / Market
Takers” Competition Bangus, Share
Rіce

The usual problem that a competitor face are: Monopoly One One No MORE, Improvements of
▪ How to survive and how to get a fair market share. ILECO, products/services
CAPELCO
in order to be competitive, one has to adjust the
size of his/her business to achieve the most Oligopoly Few Differentiated Restrіcted Oil/Fuel
Telecom
High capital
requirement
efficient plant size. Aіrlіnes

▪ Maintening the profit. Total Revenue should be Monopolistic Many Differentiated Free Shampoo Distinguishing
greater than Total Cost. Competition quality

TR = Price X Quantity and TC = Total Fixed Cost + Total

Variable Cost.

Total Fixed Cost include those cost incurred that do not

change as you increase output.
Total Variable Cost icludes those costs incurred that
vary as you increase output.

Monopoly
→ a market structure where there is only one
seller that represents the whole industry. “Price
Maker”

▪ The usual problem that a competitor faces is

improvement of its products or services. This
problems occurs because the monopolist lacks the
foresight to become efficient due to the absence
of competition.
Labor supply labor supply to the left results in increased wage per
→ is comprised of the available labor force who hour from P275 to P300 and decreased quantity from
are willing and able to work, and awaiting 30 million laborers to 24 million laborers.
deployment. These include people who are This may happen if there are less college
willing to work for a given period of time, such graduates and the labor force declines while demand
as those who finished their education, those for labor remains constant. Those who enter as college
who were unemployed from the past year or freshmen during academic year 2015-2016 will
cycle, and those who arrived from abroad graduate after four years. By year 2020 to 2022, there
and are willing to work locally. will be fewer graduates because of the
implementation of the K to 12 program. This means the
Labor demand next batch of additional labor supply, all things being
→ refers to the industry’s total available job constant, will be after 2022.
vacancies from the previous cycle or year up
to the present. Because of job mismatch, there
is a strong possibility that not all slots will be
filled. As such, the lag will be added to the
next batch.

Wages
→ are payments made in exchange for the time
and effort exerted or given by an individual
who was able to either produce a good or a Figure shows an increase in labor demand
service. The total output refers to the number from DL1 to DL2 while supply for labor remains
of workers multiplied by their corresponding constant. A shift of labor demand to the right results in
individual yield. increased wage per hour from P300 to P350 and
increased quantity from 24 million laborers to 30 million
Total output laborers. This may happen if industry expands while
→ refers to the number of workers multiplied by labor supply remains unchanged. If our labor cost
their corresponding individual yield. remains to be one of the cheapest among Asia-Pacific
Economic Cooperation (APEC) member-countries,
ANALYSIS OF DEMAND AND SUPPLY FOR LABOR then it is possible that we will be the most preferred
country for outsourced labor.

Figure shows an increase in Labor Supply from SL1 to

SL2, while demand for labor remains constant. A shift of Figure shows a decrease in labor demand
labor supply to the right results in decreased wage per from DL1 to DL2 while supply for labor remains
hour from P300 to P250 and increased quantity from 24 constant. A shift of labor demand to the left results in
million to 30 million laborers. decreased wage per hour from P350 to P300 and
This will happen if there are lot of recent decreased quantity from 30 million laborers to 24
graduates looking for jobs, a lot of unemployed million laborers.
workers who were not deployed during the past cycle This may occur during an economic recession
or year, or an increase of returning workers who have where business leave the industry or shut down.
no contracts yet from abroad and are willing to work
locally. Also, the industry did not expand, meaning
there are no additional jobs because there were no
additional businesses established and existing
businesses did not expand.

Figure shows demand for labor and labor

supply with an equilibrium wage of P300 and quantity
of labor is 2 million. If the government sets a minimum
wage of P350 which increases the wage by P/50 hour,
this will create unemployment computed as follows: 3
Figure shows a decrease in labor supply from SL1 to SL2 million supplies for laborers at P360 wage but the
while demand for labor remains constant. A shift of
demand is only for 1 million laborers. This will lead to 2 single), it is a form of investment, and most of all, it
million unemployed people. gives the feeling of security.
The previous example shows that although an According to the National Statistics Coordination
increase in the basic wage is supposed to bring about Board (NSCB), employment gross revenue generated
a better life, it instead brings about negative from constructing housing units for year 2010 was
consequences such as unemployment. around P326 billion and value added from real estate
activities amounted to P114 billion.
At present we still have low-cost housing units,
condominiums, and single-detached houses. All have
Lesson 2.6: Supply – Demand and different if the government tries to put a price ceiling
Philippine Economic Problem on low-cost housing units.
THE PHILIPPINE PESO AND THE FOREIGN EXCHANGE
Foreign exchange
→ is the conversion of Philippine currency into
and international currency, such as the
American dollar. A stronger dollar means
either international currency’s economy is
getting stronger, or the local currency’s
economy is getting weaker. A weaker dollar
mean either the local currency is getting
stronger or the international currency is getting Figure shows a unitary elastic demand
weaker. Since the American dollar is used for (change in Price = change in Quantity) and a relatively
foreign transactions, a sudden increase in its inelastic supply (change in Price > change in
supply will have an inverse effect on the dollar- Quantity). Let us say the government sets a price
to-peso ratio, resulting in the dollar becoming ceiling of P400,000 at 25 years to pay which is quite
weaker. If supply for dollar decreases due to affordable. If there are 3 million people who can afford
less remittances, then the foreign exchange to buy these units and there are only 1 million units
will rebound against the peso and the dollar available (Qd for low-cost houses > Qs for low-cost
will regain its strength. houses), the result is a shortage of low-cost houses
There are reasons for devaluating the peso amounting to 2 million units (Qs 1,000,000 – Qd
against the dollar. The value of the dollar against the 3,000,000).
peso is dependent on the supply and demand for ➢ INVESTMENTS
dollars. Dollar supply comes from dollar holders like ➢ RENTALS
OFWs, or foreign counterparts whose objective is to put ➢ MINIMUM WAGE
in their dollars (money market of a specific country) ➢ TAXES
where they see profitable. If the dollar is in demand in INVESTMENTS
a country like the Philippines, then its value will → a product that people buy with the hope that
appreciate against the peso and dollar holders will see they will be beneficial or will generate income
this as a signal to pour in the currency to take in the future.
advantage of the high exchange rate and withdraw Classification of Investment:
the same if the exchange rate is low. ➢ long-term investment (buying a property or
When do we experience an appreciating engaging in real estate)
peso against the dollar? In the Philippine setting, we ➢ short-term investment (savings and time
experience a cycle where there is an influx of dollars deposits)
during the last quarter of every year (under ceteris • Stocks
paribus) when OFWs remit their earnings to their • Bonds
families in the Philippines. If the demand for dollars
does not change, then the value of the dollar will
decline or the value of the peso against the dollar will
appreciate.
THE PHILIPPINE HOUSING SHORTAGE AND THE REAL
ESTATE BOOM

For the past five years, the Philippine economy

has been experiencing a boom in the real estate
industry. Some of the reason behind this phenomenon
are the affordability of the condominium units to the
upper middle class, an increase in population, and the
awareness of the proximity of these units to places of
work, schools, malls, and transportation terminals.
Owning a condominium is considered an
indication of success, self-actualization, and one’s
gratification. Having your own housing unit is the
closest you can get in having a family (if you are still