ECONOMICS

Economics



Economics

Introduction

Markets for given goods or services can be characterized as competitive or monopolistic in nature. Such categorization will often have discernible impacts on supplies of the goods or services, as well as their prices.

A. COMPETITIVE MARKET

If the market was a perfect world, there would be perfect competition. Perfect competition describes the hypothetical market form where no buyer or seller has the ability to influence prices. (Blinder, William, Colton 2001)

1. Characteristics

a. Large number of buyers and sellers

A perfectly competitive market consists of a relatively large number of small firms; the output of each firm makes up only a very small proportion of total market output. (Corchon 2001)

b. The market is characterized by freedom of entry and exit

In a perfectly competitive market, there are no barriers to entry or exit. Resources are assumed to be mobile.

c. Firms in the market produce a homogeneous product

The firms in a perfectly competitive market produce and sell homogeneous (identical) products each unit of market output is a perfect substitute for another unit. (Corchon 2001)

2. Structure

The imperfectly competitive structure is quite identical to the realistic market conditions where some monopolistic competitors, monopolists, oligopolists, and duopolists exist and dominate the market conditions. The elements of Market Structure include the number and size distribution of firms, entry conditions, and the extent of differentiation. (Blinder, William, Colton 2001)

a. Impacts on Supply Of Goods And Services

The correct sequence of the market structure from most to least competitive is perfect competition, imperfect competition, oligopoly, and pure monopoly. The main criteria by which one can distinguish between different market structures are: the number and size of producers and consumers in the market, the type of goods and services being traded, and the degree to which information can flow freely. (Corchon 2001)

b. Effect On Price Of Goods

Usually, the market price method does not ...