Social exchange theories exist in various forms but the underlying theme is that people may be selfish. Social exchange theories argue people may view relationships in a â€œprofitâ€ or â€œlossâ€ way. Thibaut & Kelley believed people will look to see how rewarding a relationship is and then how much it costs to be in the relationship. If there is a profit left over (rewards â€“ costs = profit) then that may encourage them to continue the relationship where as if there is a loss â€“ this may motivate them to end the relationship. Blau argued that interactions are â€œexpensiveâ€, as they take time, energy and commitment and may involve unpleasant emotions and experiences. Therefore what we get out of a relationship must exceed what goes in. Walster et al believed that social interactions involve an exchange of rewards, like affection, information, status. The degree of attraction or liking reflects how people evaluate the rewards they receive in relative to those given. SET is therefore an economic theory explaining relationships in terms of maximising benefits and minimising costs. The â€œSocial exchangeâ€ is the mutual exchange of rewards between partners; like friendship, sex and the costs of being in the relationship may be freedoms given up, time, effort. A person may make their assessment of their rewards by using two comparisons: The comparison level (CL) â€“ where rewards are compared to costs to judge profits. This may be based on past experiences and relationships as well as what we expect to get from a relationship. The comparison level for alternative relationships (CLalt) â€“ Where rewards and costs are compared against perceived alternative relationships and how they compare. A relationship is maintained if profit is perceived in both these two comparisons. Thibaut & Kelley proposed a four-stage model setting how relationships could be maintained, predicting that over time people develop a predictable and mutually beneficial pattern of exchanges assisting the maintenance of relationships; Sampling â€“ Rewards and costs are assessed in a number of relationships Bargaining â€“ A relationship is â€œcosted outâ€ and sources of profit and loss are identified Commitment â€“ Relationship is established and maintained by predictable exchange of rewards Institutionalisation â€“ Interactions are established and the couple â€œsettle downâ€. Mills et al identified two kinds of intimate relationships; (a) The communal couple where each partner gives out of concern for the other and (b) The Exchange couple who keep mental records of who is ahead and who is behind. This indicates that there are different types of relationships and SET may apply to some of them but not universally to all. Rusbult asked participants to complete questionnaires over a 7-month period concerning rewards and costs and found that SET did not explain the early â€œhoneymoonâ€ phase of the relationship when balance of exchanges was ignored. However later on relationship costs were compared with degree of satisfaction which suggests that the theory is best applied to the maintenance of relationships. Rusbult found that costs and rewards from a relationship were weighed up in comparison to possible alternative relationships when deciding whether they should be maintained which supports that social exchange models idea that people assess rewards by making comparisons. However a third element of investment (Commitment) was also a factor in this in which people compared how much they had invested into the relationship and what they stood to lose â€“ which SET does not fully recognise suggesting it does not explain such things. Rusbults Investment model looks at this however and better explains this. Hatfield looked at people who felt over or under-benefited. The under-benefitted felt angry and deprived while the over-benefited felt guilty and uncomfortable. This supports SET theory by suggesting that regardless of whether individuals benefitted, they do not wish to maintain a relationship which is unfair. Equity Theory may better explain this however and how it may that that theory is better suited to explain such as if, as SET proposes, it is all about profit â€“ then surely when people feel they are over-benefiting they are more inclined to maintain the relationship. Rubin believed that although people are not fundamentally selfish â€“ attitudes towards others are determined to a large extent by how rewarding we think they are for us supporting the theory. Argyle criticised methodologies that evaluate SET as being contrived and artificial with little relevance to real life relationships. Sedikides claimed that people are capable of being completely unselfish in relationships and do things for others without expecting anything in return â€“ which is most evident in relationships with those emotionally close to us. Sedikides believed that individuals could bolster their partners self-esteem when faced with failures or stress and therefore SETâ€™s theory of humans being out for what they can get is simplistic and inaccurate. Fromm argued against the theory also arguing that true â€œloveâ€ was about giving as opposed to false love where people expect to have favours returned. Most research has tended to concentrate on short-term consequences of relationships rather than the long-term maintenance and what drives them. This theory may apply to those that keep â€œscoreâ€. Mustein et al devised the exchange orientation tool, identifying such scorekeepers; who are suspicious and insecure suggesting that the theory only suits relationships lacking confidence and mutual trust. Equity Theory Equity does not mean equality; instead it perceives individuals as motivated to achieve fairness in relationships and to feel dissatisfied with inequity (unfairness). Definitions of equity within a relationship can differ between individuals. Maintenance of relationships occurs through balance and stability. Relationships where individuals put in more than they receive or receive more than they put in are inequitable, leading to dissatisfaction and possible dissolution. The recognition of inequity within a relationship presents a chance for a relationship to be saved â€“ that is, maintained further by making adjustments so that there is a return to equity. Relationships may alternate between periods of perceived balance and imbalance, with individuals being motivated to return to a state of equity. The greater the perceived imbalance, the greater the efforts to realign the relationship, so long as a chance of doing so is perceived to be viable.
Monopoly â€“ one person or company dominates provision of a particular product or service, in the absence of competitors. Consumers do not have a choice for provision of the product in question. A monopoly can â€˜call the shotsâ€™ on their product (price, availability etc.) as there is no alternative on offer to consumers. Monopolists tend to produce a limited number of product which are then sold at a high price (there is no need to compete). (Control of demand) The British Government seeks to restrict the behaviour of monopolies, so preventing unfair business behaviours.
Oligopoly â€“ a small number of dominant firms or individuals compete to provide a product or service. Competition is limited and as a result, very closely related. Everything a competitor does directly affects your business. E.g. If one company drops its prices all the other businesses in the oligopoly are affected. Business decisions must always consider competitorâ€™s influence / reaction. An oligopoly may agree to maintain artificially high prices â€“ technically illegal but difficult to prove if nothing is in writing.
Duopoly â€“ taken literally a duopoly means 2 firms control a market. In reality is usually means that 2 firms dominate a market by having the biggest share in it.
Examples of duopolistic markets include Coca Cola and Pepsi as dominant suppliers of soft drinks. There are many competitors in the field but Coke and Pepsi have such a huge share of the market that they donâ€™t usually see them as competition or influence on their business decisions.
Perfect competition â€“ theoretical â€“ as are all the above definitions. Multiple providers offer a wide choice to a broad spectrum of consumers. Consumers benefit from freedom of choice and businesses competing for theirÂ custom through competitive pricing and customer service.
Supply and Demand
The concept of supply and demand is at the heart of a market economy. Prices, earnings, and the supply of goods is determined by the demand for it by consumers.
Demand â€“ In economic terms this is the amount of a product (or service) desired by consumers.
Supply â€“ The quantity of a product or service a producer is willing to make available to consumers and the price at which they want to sell that product.
Demand Curve â€“ a graph showing the correlation (or demand relationship) between the price of a product or service and how many consumers would desire it at different prices (if all other variables are unchanged). It is an attempt to quantify preference. I.e. how much a consumer is willing to pay for something and at what point the cost outweighs the desire. Companies may use this demand relationship as a pricing guide and to determine how much of a product to manufacture, which in turn indicates the level of resources required. The simplest interpretation which can be drawn is that as prices rise, demand drops and vice versa.
As we can see from the graphic above, at point A the highest price (P1) reflects the lowest quantity demanded (Q1). Conversely, at point C the number of units in demand (Q3) is much greater when the price (P3) is considerably lower.
The downward slope of the curve reflects a negative relationship between price and quantity demanded. I.e. as one factor rises, the other drops and vice-versa.
Variables other than price affecting demand.
Demography â€“ the statistical make up of consumers (age range, income bracket, education, political persuasion etc.) all influence the demand for goods and services.
Income â€“ a rise in income often correlates with a rise in demand for a good. The exception to this is if a good is considered â€˜inferiorâ€™ â€“ a rise in income may result in a switch to goods considered to be of higher quality. (e.g. â€˜plonkâ€™ to fine wine)
Substitutes â€“Â Supply Curve
The basic premise from the supplierâ€™s point of view is that the higher the price a good can be sold for â€“ the more a business will be willing to supply.
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