In a market economy, prices are determined by the relationship between demand and supply. Prices are important signals in economic activity.
Basic Knowledge
Demand: The amount buyers want to purchase. It decreases when prices are high and increases when they are low.
Supply: The amount sellers want to sell. It increases when prices are high and decreases when they are low.
The price at which the quantity demanded and the quantity supplied are equal is called the equilibrium price.
Market prices fluctuate according to supply and demand. However, under monopoly or oligopoly, the market mechanism does not work, and prices tend to become monopoly prices. The Antimonopoly Act prevents this, and the Japan Fair Trade Commission monitors it.
Public utility charges such as electricity, gas, and water are regulated prices determined by the government or local authorities.
Demand and supply (the amount buyers want and the amount sellers want to sell. They determine prices)
Equilibrium price (the price at which quantity demanded and quantity supplied are equal)
Monopoly and oligopoly (a situation in which one company or a small number of companies control the market)
Antimonopoly Act (enacted in 1947 to ensure fair and free competition)
Japan Fair Trade Commission (the administrative agency that enforces the Antimonopoly Act)
Public utility charges (prices for electricity, gas, water, and other services determined by the national or local government)
In Depth (Background and Significance)
The advantage of a market economy is that resources are allocated efficiently according to supply and demand (Adam Smith's “invisible hand”). However, market failure occurs in cases such as monopoly and oligopoly, external diseconomies (pollution), information asymmetry, and the provision of public goods, making government intervention necessary.
In Japan, deregulation has progressed since the 1990s, and many fields, including telecommunications, electricity, and postal services, have been liberalized. At the same time, the Antimonopoly Act has been strengthened, and violations such as cartels (price agreements between companies) are subject to surcharges.
- The demand curve slopes downward to the right, and the supply curve slopes upward to the right
- Equilibrium price = the price at which quantity demanded and quantity supplied are equal
- Monopoly = control by one company; oligopoly = control by a small number of companies
- Antimonopoly Act 1947 = enforced by the Japan Fair Trade Commission
- Cartel (price agreement), trust (merger), and concern (cross-shareholding)
- Public utility charges = electricity, gas, water, public transportation, and so on
- Market failure → government intervention
Points to Note (Easily Confused)
① Do not reverse demand (the amount people want to buy) and supply (the amount people want to sell). ② On a graph, the demand curve slopes downward to the right, the supply curve slopes upward to the right, and their intersection is the equilibrium price. ③ Distinguish the monopoly forms of cartels (price agreements), trusts (mergers), and concerns (control through a holding company). ④ The Japan Fair Trade Commission enforces the Antimonopoly Act.
Practice
- What is the price called when quantity demanded and quantity supplied are equal?
- What administrative agency enforces the Antimonopoly Act?
- Explain what a “cartel” is.