A Market Economy

A Market Economy is the most
efficient way of organizing
economic activities. Millions of
suppliers (firm) and consumers
(buyers) make the markets. The
suppliers and consumers sell and
purchase goods that satisfy the
wants of consumers and suppliers.
Suppliers and consumers make
rational decisions, respond to
incentives and make tradeoffs. Over
all trade makes everyone better
off. (Mankiw) If one firm does not
meet the wants of the consumer then
they will lose their place in the

Sales for most major retailers have
risen this quarter, while others
have fallen. The over all sales
gain equals 7.9%. (Chandler) Sales
rose because consumers are not
bothered by threats of war. Also,
they feel confident in current and
future stability of the economy.
The reason some retailers lost and
most gained could be a number of
possibilities: Prices might be too
high for the consumer’s taste.
Marketing strategies appealed to
consumer’s tastes. Consumer’s
expectation of future prices and
economic stability.

Consumer purchasing goods from some
firms dropped. This could have been
because of price increase of goods
sold by retailers. Prices of goods
rose because of cost increase due
to the rise in Average Total Cost.
Average Total Cost is Total Cost
(everything that is given up to pay
for good) divided by Quantity (how
many goods the firm produces). This
will be driven up by the Variable
Cost (costs that vary with the
quantity of output produced)
because of inflation; wage increase
and cost of goods needed to produce
the final good.

With some firms rising having their
Average Total Cost going up and not
increasing price, they will lose
profit. Profit is attained by
[Total Revenue (the amount a firm
receives for sales of it’s output)
divided by Quantity minus Total
Cost divided by Quantity]
multiplied by Quantity. Or, Profit
will equal (Price minus Average
Total Cost) multiplied by Quantity.
If the Average Total Cost is larger
than the price than the firm will
face either raising price or with a
short-term profit loss-shutdown. If
profit loss is in effect with the
firms long-run Average Total Cost
then the firm will have to cut
their losses and exit the market.

One reason why most firms did
better than others is because of
their Average Total Cost being
lower than the price. They will be
able to make the profit that is
needed for the firm to survive.
Another reason is because the firm
has a strong marketing strategy.
Marketing involves the gathering of
useful data: what the consumer
wants. When the data gathered and
studied the information provided
will let the firm know what goods
to produce or what type of
advertising to use. Advertisers
will make it seem that the firm’s
product is better that similar
products. Consumers will be led to
believe that the goods advertised
are better. Consumers will purchase
the goods that have a higher price,
as long as the price is rational.
Firms that have maximized marketing
and advertising will be the ones
that make profit. Some retailers
such as Sears, whose sales dropped
0.9%(Domestic) due to disappointing
sales in apparel (Chandler)
Comparing with Eddie Bauer whose
sales rose 5% since 1998. The
reason why Sears’s sales dropped
and Eddie Bauer sales rose is
because of a strong advertisement
strategy. Sears never mentioned
advertisement and Eddie Bauer has a
strong advertisement strategy
letting consumers purchase their
goods over the Internet.