Friday, May 04, 2007

Questions I missed.... :)

Okay - here are a couple of questions I missed in the last few blogs (I tend to only look at the last one after bad...) :)

Ashley said...
Question: i was looking over the Unit 4 packet and i still dont quite grasph the difference between and factor/product and the nsupply/demand. The factor involves work (hiring for example), while the product involes the selling and buying. correct? How do you determine then whether its the supply or demand role? (Activity 43, lesson one, Part A-second column in that chart)Thanks much!
8:56 PM, April 24, 2007

Factor markets are looking only at things that make product - the factors of production (land, labor, capital, entrepreneurship). Most of what we do with factor markets is in labor. Anything having to do with purchasing a product from a store is a product market. Anything to do with hiring people or making things is a factor market (so therefore, supply really is a factor market, but we see it in the product market with what is produced).

In looking at the S or D of factor markets, you have to think about what is really being bought or sold. If the answer is labor - then it is a factor market. If it's capital, factor market. If it's...peanuts, it's the product market. So with the S & D questions that were in the packet (since I'm sitting in the ALC right now, I don't have the questions right in front of me), they dealt with both kinds and you had to figure out which market it applied to first, and then whether it was S or D, right?

So - if something says that the demand for computers goes up (product market), how does that affect the number of computer salespeople (factor market)? You would have to look at which is affected first (product market), and which part (demand) versus the secondary e/affect (factor market) on demand.

Am I just talking gibberish? Does this make any sense?

rageena said...
Okay, so what is the difference between a 1st, 2nd, and 3rd degree monopoly? (From the powerpoint).
11:21 PM, April 26, 2007

The "degrees" in monopoly are talking about price discrimination. I really didn't hit it because it hasn't been on the FRQ in at least 7 years - but you never know. :)

First degree will charge the highest price possible at each quantity. They are getting the highest possible CS shifted to profit because they are charging the highest possible amount. On the graph, they would be able to discriminate at every point from equilibrium to the demand curve, all the way over - that's why it's all colored in on that graph. This is the "perfect" discrimination because it allows the most profit for the monopolist.

Second degree is very similar to First degree - but falls into "block pricing" and offers the chance for different prices being charged to different people/groups depending on how much they purchase. So - if you buy a lot (like Sam's Club or something), your price will decrease with 2nd degree.

Third degree is the most common. The monopolist can discriminate against buyers on very noticable characteristics, like age (senior citizens discounts) or gender ("girls have no cover charge!"), or location (ever wonder why gas prices are always higher in Johnson Creek than here? It's right off the Interstate).


Ashley said...

Ok, i think i kind of understand the question i asked. About the monopolies which one is the least efficient??? 1st degree right? Which one would the government be most likely to intervene in, or put a stop to?

D Mac said...

so, i was under the impression that the gas industry was one of oligopolies and/or monopolistic competition because there is more than one firm that sells the gas. but you just kinda said it was a strait monopoly. which is it?

KM said...

Ashley - they're all inefficient. If you had to choose who was the most inefficient, yes, 1st degree, because the customer loses so much CS with it.

Derek - gasoline as a whole is a cartel (oligopoly). So, as to where the gas stations can buy it, etc - there's very few options. Gas stations *do* have some market power to price, though, and if demand is different in different areas, the price will rise, and so will their profits. So if there is a gas station out in the middle of nowhere, they will jack that price up as a monopoly in that area. Does that make sense?

It's like where I used to live in TX. When you went north out of Harlingen, you hit an area that was about 150 miles of scrub brush/desert, and there's this little sign that you pass that says no gas available for 50 some-odd miles. That gas station had it MADE! They charged more than anyone else at home, because if you needed gas, you HAD to go to them - making it totally inelastic in that sense. So, I guess it's more of a questions of elasticity with price discrimination.

There is price discrimination in oligopolies, it just doesn't happen as often. Think of GM & Ford price wars and interest wars. Same thing.

Dan said...

So the whole degree thing has to do more with the elasticity of the demand than anything else? OK...

Another thing, the whole factor market...anything on the AP test is going to be in regards to the supply and demand of labor, or will there be other things besides that on there?

Kate said...

thanks for the information on the degrees of monopolies. I was a little confused by this too.

and that gas station you were talking about did have it made. that was a great idea that business owner had, even though it would suck to operate a gas station in the middle of the desert.

rageena said...

Makes sense now. Thanks - I'm also glad you covered which was most efficient... It was my next question.