Applied Economics Q3 Module 5: Various Market Structures PDF

Applied Economics Quarter 3 – Module 5: Various Market Structures Applied Economics – Grade 12 Alternative Delivery Mode Quarter 1 – Module 5: Various Market Structures First Edition, 2020 Republic Act 8293, section 176 states that: No copyright shall subsist in any work of the Government...

Applied Economics Quarter 3 – Module 5: Various Market Structures Applied Economics – Grade 12 Alternative Delivery Mode Quarter 1 – Module 5: Various Market Structures First Edition, 2020 Republic Act 8293, section 176 states that: No copyright shall subsist in any work of the Government of the Philippines. However, prior approval of the government agency or office wherein the work is created shall be necessary for exploitation of such work for profit. Such agency or office may, among other things, impose as a condition the payment of royalties. Borrowed materials (i.e., songs, stories, poems, pictures, photos, brand names, trademarks, etc.) included in this module are owned by their respective copyright holders. Every effort has been exerted to locate and seek permission to use these materials from their respective copyright owners. The publisher and authors do not represent nor claim ownership over them. Published by the Department of Education Secretary: Leonor Magtolis Briones Undersecretary: Diosdado M. San Antonio SENIOR HS MODULE DEVELOPMENT TEAM Author : Raynie E. Navarro Co-Author – Language Editor : Janina Mae V. Malibiran Co-Author – Content Evaluator : Charina A. Morales, EdD Co-Author – Illustrator : Raynie E. Navarro Co-Author – Layout Artist : Raynie E. Navarro Team Leaders: School Head : Felisa C. Bravo LRMDS Coordinator : Milyn B. Alcaide SDO-BATAAN MANAGEMENT TEAM: Schools Division Superintendent : Romeo M. Alip, PhD, CESO V OIC- Asst. Schools Division Superintendent : William Roderick R. Fallorin, CESE Chief Education Supervisor, CID : Milagros M. Peñaflor, PhD Education Program Supervisor, LRMDS : Edgar E. Garcia, MITE Education Program Supervisor, AP/ADM : Romeo M. Layug Education Program Supervisor, Senior HS : Danilo S. Caysido Project Development Officer II, LRMDS : Joan T. Briz Division Librarian II, LRMDS : Rosita P. Serrano REGIONAL OFFICE 3 MANAGEMENT TEAM: Regional Director : May B. Eclar, PhD, CESO III Chief Education Supervisor, CLMD : Librada M. Rubio, PhD Education Program Supervisor, LRMS : Ma. Editha R. Caparas, EdD Education Program Supervisor, ADM : Nestor P. Nuesca, EdD Printed in the Philippines by Department of Education – Schools Division of Bataan Office Address: Provincial Capitol Compound, Balanga City, Bataan Telefax: (047) 237-2102 E-mail Address: [email protected] Applied Economics Quarter 1 – Module 5: Various Market Structures Introductory Message This Self-Learning Module (SLM) is prepared so that you, our dear learners, can continue your studies and learn while at home. Activities, questions, directions, exercises, and discussions are carefully stated for you to understand each lesson. Each SLM is composed of different parts. Each part shall guide you step-by- step as you discover and understand the lesson prepared for you. Pre-tests are provided to measure your prior knowledge on lessons in each SLM. This will tell you if you need to proceed on completing this module or if you need to ask your facilitator or your teacher’s assistance for better understanding of the lesson. At the end of each module, you need to answer the post-test to self-check you’re learning. Answer keys are provided for each activity and test. We trust that you will be honest in using these. In addition to the material in the main text, Notes to the Teacher are also provided to our facilitators and parents for strategies and reminders on how they can best help you on your home-based learning. Please use this module with care. Do not put unnecessary marks on any part of this SLM. Use a separate sheet of paper in answering the exercises and tests. And read the instructions carefully before performing each task. If you have any questions in using this SLM or any difficulty in answering the tasks in this module, do not hesitate to consult your teacher or facilitator. Thank you. to encourage and assist the learners as they do the tasks included in the module. What I Need to Know In this module, you will be able to know the following: Lesson 1: Market Structures Lesson 2: Monopoly Lesson 3: Monopolistic Competition Lesson 4: Perfect Competition Lesson 5: Oligopoly 2  Lesson 1 Market Structures What’s In A market is one of the numerous infrastructures, systems, institutions, social relations, and procedures, wherein buyers and sellers usually interact with each other to exchange goods and services. In relation to that, this lesson will enlighten you of the different market structures that distinguish an economy. What’s New Tune: Twinkle, Twinkle, Little Star Market structures, what are those? Send me help ‘coz I don’t know. Is it needed for me to learn? If that was the case then start the lesson. What is It Market structures are the key points in evaluating business’ economic environments. It deals with strategic decision making and focuses on both economics and marketing, making professional entrepreneurs precisely judge industry, policy changes, and market news. The significant operational definition of market structure is a concern to both economists and marketers since they have different methodological approaches in this, and each of them has their strengths and weaknesses. 3  Moreover, these are the most notable characteristics of market structures: The relationship between a seller to another seller, a seller to his/her buyer, and many more. The product that has been sold and the extent of product differentiation, which affects cross-price elasticity of demand. The number of companies or corporations, including the scale and range of international competition, in the market. The concerns in entering and exiting the market. The dissemination of market shares for the largest firms. The number of buyers and how they behave to mandate a product’s price and quantity. The turnover of customers which can be affected by the extent of consumer or brand loyalty and the influence of persuasive advertising and marketing. The interactions and variations in these aspects provided the existence of different market structures, which are the following: Monopoly. Herein, there is a single merchant of a product for which there is no close alternative. Monopolistic Competition in which differentiated product has many vendors. Perfect Competition, wherein, a similar product has many sellers. Oligopoly, whereupon, there are few sellers of a standardized or a differentiated product. These market structures will further be discussed in the subsequent lessons. What’s More Directions: Choose the answer from the box. Write the letter of the correct one on the space provided before each number. 4  a. market f. oligopoly b. interaction and variations g. monopolistic competition c. business professionals h. perfect competition d. market structures i. monopoly e. economics and marketing j. economists and marketers ___ 1. These are the key points in evaluating business’ economic environments. ___ 2. What do you call the type of market structure in which there is a single merchant of a product for which there is no close alternative? ___ 3. It is one of the social relations wherein people exchange goods and services. ___ 4. Market structures deal with strategic decision making and focus on what? ___ 5. It is a type of market structure wherein a similar product has many sellers. ___ 6. Who are the people concerned about market structures because they have different approaches in this said matter? ___ 7. What do you call the type of market structure in which differentiated product has many vendors? ___ 8. Who can precisely judge industry, policy changes, and market news? ___ 9. What provides the existence of different market structures? ___ 10. It is a type of market structure wherein there are few sellers of a standardized or a differentiated product. What I Have Learned Directions: Complete the statement by writing what you have learned in this lesson. Cite also at least 3 to 5 concepts you have learned. In this lesson, I have learned that market structures are 5  5. Lesson 2 Monopoly What’s In In the past lesson, you have learned that market structures are the key points in evaluating business’ economic environments. Its interactions and variations in different aspects provided the existence of monopoly, monopolistic competition, oligopoly, and perfect competition. In this lesson, you will find out more about the first one, which is a Monopoly. What is It A monopoly pertains to a situation wherein there is only a single company that produces a certain product in the entire market. Because of that, they have the power or the authority to manipulate their products, such as minimizing their outputs to put higher prices in it and to gain more profit. In this situation, consumers have a lesser benefit, especially when the product is essential to them, making them buy it despite being expensive. Monopolies commonly emerge because there is a high barrier to entry and exit in a particular market. The three main factors that can become the reason for it are the following. Ownership of a fundamental resource - If the key resource is solely owned by a firm, the firm can limit the access to this source, therefore creating a monopoly. Economies of scale – In some sectors, a single firm can sustain products or goods at a lower price than two or more firms could, resulting in a natural monopoly, which arises even without the intervention of the government. Government Regulation – To suffice the interest of the public, the government usually restricts market entries in a legal way, which is through copyright laws and patents. 6 Frankly said, monopolies are usually unwelcomed to society because it can cause deadweight loss by producing lesser outputs than the competitive ones, yet still, have higher prices. However, the government can react to these by demanding price regulations, establishing competition laws, nationalizing the monopolies, or by not doing anything at all. What’s More Directions: Read each question carefully and write TRUE or FALSE on the space provided before each number. ______ 1. In a monopoly, many companies sell the same product. ______ 2. The government’s action can cause monopolies to emerge. ______ 3. The consumers benefit more in buying monopolized products. ______ 4. You are not allowed to buy a monopolized product. ______ 5. The entry and exit are blocked in monopoly. ______ 6. The firm’s ownership of a fundamental source can cause a monopoly. ______ 7. There are substitutes or alternatives to monopolized products. ______ 8. A natural monopoly can arise even without the government’s intervention. ______ 9. Monopolies are usually welcomed to society. ______ 10. Monopolies can cause a deadweight loss to the economy. ______ 11. The government can demand price regulations for monopolies. ______ 12. Monopolies are illegal businesses. ______ 13. Competitive markets produce lesser outputs than monopolies. ______ 14. The government cannot nationalize monopolies. ______ 15. The monopolist can set the product’s price. What I Have Learned Directions: Complete the statement by writing what you have learned in this lesson. Cite also at least 3 to 5 concepts you have learned. 7  What I Can Do Directions: State if the given situation is a MONOPOLY or NOT. (3 points each) _____________ 1. Barbara went to the market yesterday to look for a cosmetic product. She bought 5 pieces of it and they all have different brands. _____________ 2. Your mom asked you to buy a Brand A Pancit Canton in Aling Nena’s Store. Sadly, they ran out of it so you just bought Brand X Pancit Canton. _____________ 3. Achilles owns the only Art Shop in their town that’s why he raised each material’s price and limited the products they make. _____________ 4. Jason went to the mall last week to purchase a gift for Clara. He then noticed that there was a newly opened accessory shop and bought a necklace for her despite being too expensive. _____________ 5. Your friend opened a cake shop. He then asked you to come and buy some. You can’t complain so you ended up buying one. Unexpectedly, it tasted good. When you came back there the following week, the cake you bought last time was already unavailable. Lesson 3 Monopolistic Competition What’s In In the previous lesson, you learned that a monopoly pertains to a situation wherein there is only a single company that produces a certain product in the entire market. Moreover, you also found out that they have the power to control their products, such as minimizing their outputs to put higher prices in it and to gain more profit. On the other hand, this lesson will make you aware of the second type of market structure: Monopolistic Competition. 8  What’s New Isabela went to the grocery store earlier along with her 7-year-old daughter named Chelsea. When they arrived at the powdered milk’s corner, she asked her daughter. Isabela: Baby, what milk do you want? Milk A or Milk B? A question then popped out of Chelsea’s mind, making her answer her mother with another question. Chelsea: Mom, why do I need to choose? Both are the same kind anyway. Why do we have different brands? What is It When there is a numerous quantity of small firms competing against each other, it is called a Monopolistic Competition. However, in this type of market structure, several companies sell the same product but they have their differences. Those differences give them market power which lets them charge higher prices for a product, but is within a certain range. These key factors can include style, brand name, location, packaging, advertisement, and pricing strategies, which became every firm’s basis in marketing. You can assume the following when discussing the monopolistic competition: Every firm is a price setter and can maximize their profit. They sell similar yet slightly different products. The consumers can favor a product more than the other one. There are easy entrances and exit in this market. This type of market structure can be observed in reality. Some of the common examples are: Cap’n Crunch, Lucky Charms, Froot Loops, and Apple Jacks, which are all companies that sell breakfast cereals with small differences. McDonald and Burger King, which both sell slightly different burgers Nike and Adidas, which both sell running shoes, but are different in some ways. 9  What’s More Directions: Read each question carefully. Fill in the blanks and choose the correct answer from the box. similar/same difference price prefer/choose entry/entrance monopolistic competition basis profit slightly different exit (1) A _______________ is a type of market structure wherein there is a numerous quantity of small firms competing against each other. In this market structure, several companies can sell (2) _____________ yet (3) _____________ products. Moreover, any firm can set the (4) __________, but only with a certain range. They can also maximize their own (5) _____________. The (6) _____________ in their products can be in style, brand name, location, packaging, advertisement, and pricing strategies, which became every firm’s (7) _____________ in marketing. There is also an easy (8) _____________ and (9) _____________ in this market. On the other hand, the consumers can (10) _____________ a certain product over the other one. What I Have Learned Directions: Complete the statement by writing what you have learned in this lesson. Cite also at least 3 to 5 concepts you have learned. In this lesson, I have learned that monopolistic competition is. 10  What I Can Do Directions: Read each question carefully. Write MC if it is an example of a monopolistic competition and NMC if it is NOT. (3 points each) ______ 1. Cynthia recently opened her milk tea shop. A few weeks later, her friend, Vilma, also opened one. They both sell the same product, which is milk tea, but it is different in terms of style, packaging, and advertisement. ______ 2. Edward owns a pizza shop, and it is the only one in their town. Due to that, he decided to lessen the pizzas they produce every day to put a higher price on it. ______ 3. You went to the market to buy a dress for your sister. A floral dress and a sexy dress caught your attention. You are sure that those are exactly your sister’s type, but they are from different shops. In the end, you chose the floral one because you trust its brand. ______ 4. Elsa wants to buy shoes for her son, but she can’t choose whether it should be Nike or Jordan. She then called her son to ask him, and he said he prefers Jordan. ______ 5. Alfredo owns the only butchery shop in their village. Every morning, customers line up in front of his store to buy one because it easily gets out of stock. 11  Lesson 4 Perfect Competition What’s In In the previous lesson, you have learned about monopolistic competition which is another type of market structure. You have learned that it is a type of imperfect competition where producers offer products that are distinguished from each other but not perfect substitutes. In this lesson, you will also encounter another type of market structure that involves competition. This structure is known as perfect competition. What’s New Visualize yourself as a seller of bubble tea in a food court. Your bubble tea includes tapioca pearl, cream cheese, and cookies. In the same food court, two other bubble tea stalls are offering the same product as yours. Among you and the other sellers, no one can change the price of the product since everyone is aware that it costs 85 pesos each large bubble tea. Once you have increased the price of your product, the consumers may tend to buy on other stalls since they are also selling the same item at a cheaper price. In this situation, it shows a perfect competition market structure. What is It Perfect competition is a type of market structure where many products are similar and may substitute each other since they have the same features, price and, quality. There are many sellers and consumers in this type of market with almost the same products. Moreover, a perfectly competitive market requires few barriers to enter and it is easy for producers to quit whenever they want. They also have uniform 12 prices that depend on the demand and supply which means that the market has full control over implying prices. Perfectly competitive markets show these characteristics: Both the producers and consumers have perfect knowledge without information failures. The details and information in this market are easily accessible to all participants. Thus, risk-taking is not necessarily important and the power of an entrepreneur is limited. Producers and consumers are making coherent decisions for their benefit. For instance, producers make decisions to maximize their profits, and consumers make decisions to maximize their utility. There are no hindrances to enter nor exit from this type of market. Companies manufacture identical products that are not branded. Producers don’t have the power to influence the market price nor the condition.. What I Have Learned Directions: Complete the statement by writing what you have learned in this lesson. Cite also at least 3 to 5 concepts you have learned. In this lesson, I have learned that perfect competition is What I Can Do Directions: Read each question carefully. Tell whether it is an example of a perfect competition market or not. Put a check on the column of your answer. SITUATIONS PERFECT NOT COMPETITION 1. You went to a bazaar to buy a pair of shoes. You noticed that the products from different stalls are similar then you asked for their prices. All of the sellers answered you at the same price. 2. A producer decided to increase the price of his product without considering the prices from other stores. 3. An entrepreneur wants to start a cosmetic shop. However, she needs to comply with the requirements and acquire legal documents such as permits and licenses. 4. You decided to create a small snack house. Before you established your stall, you considered first the products and prices of your competitors. 13  5. Nena wants to buy a new smartphone for her online classes. However, when she asked how much does it cost, it is expensive. Now, she is stuck between purchasing the product or not at all. 6. Unlike other booksellers, Alfredo increased the price of the books he sells. 7. In Manila, a lot of milk companies manufacture identical products that are all branded. 8. You and your sister have different milk tea stalls in the market. However, the product you both sell and its price are the same as hers. 9. You walked around the whole mall and you found out that there were 10 photo booth stalls. You also noticed that they all have the same fees. 10. Kristine is the only seller of graham balls in their school that’s why she increased its price. Lesson 5 Oligopoly What’s In In the previous lesson, you have learned about the market structure perfect competition. You were able to know its characteristics such that it involves many producers with almost the same products and prices. Besides, an individual cannot increase the price of his/her product as the customers will turn to other producers. After knowing those, you will be able to understand another market structure in this lesson. You will encounter the last market structure which is an oligopoly. What’s New Imagine yourself starting to build an automobile business. Since you are just a beginner, you will set your price lower than your competitors. In this way, you can attract more customers as they may notice the difference in price. Once you already have more customers compared to other companies, they would be forced to lower their prices for them to gain more clients and sales. This situation shows an oligopoly market structure. 14  What is It An oligopoly is a type of market structure where firms dominate the market by supplying either similar or differentiated products. There are only a few companies in this structure and they have control over price implying. It is also difficult to enter this market since there are a lot of barriers. Moreover, participants in oligopolies are price setters rather than takers. Some examples of oligopoly companies are the automobile industry, the steel industry, aircraft manufacturing industry, etc. Oligopoly markets show these characteristics: Entrepreneurs maximize profits. Oligopolies set prices rather than take price. There are a lot of barriers. It includes government licenses, economies of scale, patents, and access to expensive and complex technology. Also, some government policies are favoring the current companies in the industry so it is hard to enter for beginners. Interdependent. Like for example, if one firm changes and decreases its price, it will significantly affect the other firms. Rampant advertising since most companies use national media to promote their products. What’s More Directions: Identify whether the example companies are oligopolies or not. Write YES if it is and NO if not. 1. Automobile industry 2. Bubble tea shop 3. Snack house 4. Mass media company 5. Oil and gas industry 6. Cellular phones company 7. Taco stall 8. Pharmaceuticals company 9. Poultry shop 10. Aluminum and steel company 11. Computer company ______12. Airlines ______13. Sari-sari store ______14. Network providers ______15. Aircraft manufacturing industry 15  Assessment Directions: Read each question carefully. Encircle the letter of the correct answer. 1. Can different firms be 5. Do monopolies cause deadweight interdependent with each other? loss in the economy? a. Yes, what a single firm does can a. Yes, because they are illegal significantly affect the firms. businesses. b. No, they have their own b. Yes, because they are not price businesses. setters. c. No, that’s not allowed. c. Yes, because they can minimize d. Yes, but that is illegal. their output production to put 2. It deals with strategic decision higher prices and gain more making and focuses on both profit. economics and marketing, making d. No, because they uplift the professional entrepreneurs precisely economy. judge industry, policy changes, and 6. In a monopolistic competition, can market news. every firm set the price? a. market a. Yes, because their products are b. market structures different in their own way. c. business b. No, because that is not allowed. d. economy c. No, because no one will buy if they increased the price. 3. It is one of the numerous d. Yes, but that is illegal. infrastructures, systems, institutions, 7. Is there a type of market structure social relations, and procedures, wherein the market has full control wherein buyers and sellers usually over implying prices? interact with each other to exchange a. Yes, but that is only if there are goods and services. uniform prices that depend on a. market the demand and supply. b. economy b. No, the market doesn’t have the c. business power to do that. d. malls c. No, different companies will 4. It usually emerges because there is protest if that happened. a high barrier to enter and exit in a d. Yes, but that is illegal. particular market. 8. Are the participants in oligopolies price setters or takers? a. business b. market a. They are price setters. c. monopoly b. They are price takers. d. economy c. They are both. d. None of the above. 16 9. What do you call the market structure for that. structure where many products are b. No, companies won’t agree with similar that may substitute each other producing identical products since they have the same features, and not branding it. price and, quality? c. No, that is not allowed. d. Yes, but they cannot sell it. a. market b. perfect competition 13. In a monopolistic competition, can c. monopolistic competition consumers prefer one product over d. trade another? 10. It pertains to the situation where a. Yes, it’s their right. several companies sell the same yet b. No, that’s not allowed. slightly different products. c. No, their preference does not matter. a. monopoly d. Yes, but they are not allowed to b. trade buy it. c. monopolistic competition d. market 11. Which of the following are the types of market structures? I. Monopoly II. Business 14. It is a type of market structure III. Oligopoly where firms dominate the market by supplying either similar or IV. Economy differentiated products. V. Market a. similar market VI. Monopolistic Competition b. monopoly VII. Perfect Competition c. oligopoly d. differentiated market a. I, II, III, VII 15. Are monopolists price setters? b. I, III, VI, VII a. Yes, because they are the only c. II, III, V, VI producer of the product they d. All of the above. sell. b. Yes, because they are NOT the only producer of the product they sell. 12. Can companies manufacture c. No, because the government identical products that are not doesn’t allow them. branded? d. No, because that is illegal. a. Yes, there is a specific market 17 For inquiries or feedback, please write or call: Department of Education – Region III, Schools Division of Bataan - Curriculum Implementation Division Learning Resources Management and Development Section (LRMDS) Provincial Capitol Compound, Balanga City, Bataan Telefax: (047) 237-2102 Email Address: [email protected]