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Part 1: Foundational Concepts For Media Economics: Outline
Part 1: Foundational Concepts For Media Economics: Outline
Part 1: Foundational Concepts For Media Economics: Outline
Dr An Nguyen
Media Economics – MMAP02 (HCMC)
M.Sc. in Media & Communications Management
HO Chi Minh City, 19 January, 2010
Outline
Branches of economics
Microeconomics
'the study of the allocation of resources and the
distribution of income as they are affected by the working
of the price system and by the policies of the central
authorities' (Lipsey & Chrystal, 1995: 890)
Three major subjects: consumers, firms and markets
Macroeconomics
'the study of the determination of economic aggregates
and averages, such as total output, total employment, the
general price level, and the rate of economic growth'
(Lipsey & Chrystal, 1995: 889)
Managerial economics
Media economics
studying "how media operators meet the informational
and entertainment wants and needs of audiences,
advertisers and society with available resources"
(Picard, 1989: 7).
Economic analysis
Most often a marginal analysis
examining the consequences of adding or subtracting one
unit to or from something already in place.
Fallacy of composition
If one individual or firm benefits from some action, it
does not necessarily mean that all individuals or all
firms will benefit if they take the same action at the
same time.
3. Firm behaviours
The firm
Firms = establishments where production takes place
i.e. where labour, land and capital are converted into goods
and services.
requiring a structured interrelationship between various
functions and subtasks to achieve the overall business goals
Measures of output
Total product (TP) = total amount produced
during a certain period of time with a certain set of
production factors
1 1 20 20
2 1 60 40
3 1 90 30
4 1 110 20
5 1 120 10
Returns to scale
Returns to scale = the effect on total output when
all inputs are increased by an equal percentage
Managerial economies
Some managerial functions do not cost more to produce a
higher quantity of goods/services
e.g. personnel for R&D, sales, administration, distribution
Financial economies
E.g. larger firms with larger outputs can enjoy lower interest
loan rates
Social economies
Benefits from building goodwill and loyalty among both
customers (to increase sales) and employees (to increase
internal efficiencies)
Specialisation of input
Greater specialisation of labour and machinery improves the
overall efficiency of production
Economies of scope
Takes place when the average total cost of
production decreases as a result of increasing the
number of different goods produced
Key reasons:
Joint use of factors of production (same labour, equipment
and infrastructure) to produce different products
Joint marketing and administration
Production of one good resulting another as a by-product
Examples
a movie shown in theatres, then broadcast to TV networks,
and then produced in DVD and VHS formats for sales/rentals
a company producing TV sets, VCRs, DVD players,
camcorders and other consumer electronic hardware
Introduction
Market = an area over which buyers and sellers
negotiate the exchange of some product or related
group of products
E.g. the film market, advertising market, newspaper
market, television market, online market etc.
An economy is a combination of thousands and thousands
of markets
In the example:
midpoint = (4+6)/2 = 5.
% change between $4 and $6 = [(6-4)/5]x100 = 40%
Shift in demand
Even if price is fixed, demand
for a good/service can
change if another demand-
related factor changes.
In the figure:
Demand for a movie with a box
office ticket of $2 increases
from Q1 to Q2 due to some
non-price factor (e.g. no better
movie to watch)
Demand curve for the movie
shifts to the right from D1 to
D2.
Other determinants of demand
Shift in supply
Even if price is fixed, supply
of a good/service can change
if a non-price factor changes.
In the figure:
Supply of a movie with a box
office ticket of $2 decreases
from Q1 to Q2 due to some
non-price factor.
Supply curve for the movie
shifts left from S1 to S2.
Allocation of goods/services at
its most efficient point
Monopolistic competition
A good number of sellers
Differentiated products (products that are substitutable for
each other but each has some distinguishable attributes and
comes from only one firm)
Product differentiation leads to brand loyalty and thus gives
firms some control over their prices but this power is limited
(due to the availability of many close substitutes)
Monopoly
A single firm has absolute control over the market and its
product’s price
Insurmountable entry barriers