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The Beginner Guide to economics: Markets and Forms of Market

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Index

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p<>{color:#FFF;}. Topic
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Market

Market is any medium through which buyers and sellers interact to do purchasing and selling of goods or services and where the physical existence of buyers and sellers is not required.

Characteristics of Market

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p<>{color:#000;}. Not a Particular place: Market is not said to a particular place but it refers to the process through which customers and sellers interact with each other to do the transactions.

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p<>{color:#000;}. Buyers and Sellers: Market consists of buyers and sellers which perform the buying and selling transactions. These are the main basic components of the market structure.

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p<>{color:#000;}. Physical Presence is not compulsory: In the modern ages of ecommerce physical presence of either of parties is not necessary. The sale and purchase functions can be performed through other medium like online marketing.

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p<>{color:#000;}. Free Competition: In the market there is free competition among all the producers and they often compete in the market through advertising, customer service, low price can be followed but it declines the profit.

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p<>{color:#000;}. Price determination: As the buyers and sellers are free to perform in the market .The price of the commodity is fixed according to the supply and demand of the product. Market Price is fixed as OP corresponding to different quantity of demand and supply shown by supply and demand curve.

Forms of Market

Market on several basis is divided into three parts:

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p<>{color:#000;}. Perfect Competition

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p<>{color:#000;}. Monopolistic Market

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p<>{color:#000;}. Monopoly

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p<>{color:#000;}. Oligopoly

Perfect Competition

It is a form of market structure where there are large number of buyers and sellers selling homogeneous products.

Characteristics:

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p<>{color:#000;}. Large number of buyers and sellers: In the perfect competition there are large number of buyers and sellers in the market and perform their functions i.e. sale and purchase according to their needs.

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p<>{color:#000;}. Homogeneous Products: Homogeneous products refer to the product which is identical in terms of size, shape, color etc. eg. Two similar 100g packets of lays, two trimax bue pens etc.

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p<>{color:#000;}. Free entry and exit of firms: There is no barrier related to entry or exit of a firm. A firm can enter into the industry easily and can also leave the industry if it Iis facing losses or any other reason.

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p<>{color:#000;}. Perfect knowledge: As in the market homogeneous products are sold the buyers and producers are perfectly aware about the goods characteristics available in the market.

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p<>{color:#000;}. Perfect Mobility: As Identical products are produced all over the market so it is easy for the labor to move from one producer to another as all are using same techniques of production.

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p<>{color:#000;}. Price taker: In this market price of the products is not fixed by firms they are only price takers, price is fixed by industry according to the market demand and supply. As there are large number of firms in the market no individual producer id able to influence market price. An Industry consists of a group of firms.

Monopolistic Competition

Monopolistic Market s a form of market structure where there are large number of buyers and sellers selling differentiated products.

Characteristics:

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p<>{color:#000;}. Large number of buyers and sellers: In the monopolistic competition there are large number of buyers and sellers in the market selling differentiated products.

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p<>{color:#000;}. Differentiated Products: Differentiated products refer to the product which is differentiated from each other in terms of size, shape, color etc. e.g. Colgate and pepsodent toothpaste, hero and Yamaha bike.

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p<>{color:#000;}. Free entry and exit of firms: There is no barrier related to entry or exit of a firm but there are certain restrictions to the entry of firm as it cannot enter as the same brand name already available in the market but there is absolute freedom in case of exit of firms.

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p<>{color:#000;}. Imperfect knowledge: In the monopolistic market there are lot of differentiated products because of which customers and producers don’t have perfect knowledge about all the products.

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p<>{color:#000;}. Imperfect Mobility: There are some difficulties in mobility of labor as different technologies are used in different industries for production but after adequate training of labor it can be shifted easily.

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p<>{color:#000;}. Partial price maker: In this type of market the producers can influence the price but can’t fix the price according to their discretion as they has also have to look after the price of rival firms before fixing their own price.

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p<>{color:#000;}. Selling Costs: Monopolistic market spends a considerable amount on selling costs such as advertising, brand promotion, customer service etc. As there are lot of products in the market, the producers in order to highlight their product to consumers incur these selling costs.

Monopoly

Monopoly is a form of market structure where there is a single seller and a large number of buyers featuring price discrimination.

Characteristics:

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p<>{color:#000;}. Single seller and large number of buyers: In monopoly there is a single seller producing all the output for a commodity in the market and large number of buyers. eg. Indian railways, government has the monopoly over the railways in India..

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p<>{color:#000;}. No entry of the firm: In Monopoly Firms cannot enter the industry. There are certain barriers to entry for a new firm such as patented technology, natural monopoly.

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p<>{color:#000;}. No Close substitute: No close substitute are available in the monopoly market as the other firms cannot enter the same Industry because of some barriers. So, the consumer has no choice to substitute to another good at its place.

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p<>{color:#000;}. Imperfect Mobility: Mobility of labor is not possible in the monopoly as there is only one producer in the market have a type of technique of production which cannot match with others producers.

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p<>{color:#000;}. Full Control over Price: A monopoly firm has the full control over price as it is the only one producer in the market and it may decide the price as per his own discretion and that’s why in monopoly producer earn supernormal profits.

How does a Monopoly market structure arise

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p<>{color:#000;}. Government Licensing: Government issues license in certain industries to ban entry of another firms into it like nuclear power, railways, etc.

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p<>{color:#000;}. Patent Rights: Patent Rights are given to the new technology and innovation to promote research and development for a specific period of time. In this only patent holder has the right to production of goods.

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p<>{color:#000;}. Natural Occurrence: Sometimes monopoly market structure arises due to the natural occurrence. Eg Only source of water supply(well) in an island is a monopoly over the water supply on that island.

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p<>{color:#000;}. Cartels: Cartels consists of group of firms which have explicitly agreed to work together to increase their profit. In Cartel price and output is commonly decided by all the firms. Eg OPEC is a cartel of oil producing nations and the price of oil has considerably rise many time which was difficult without it.

Oligopoly

Oligopoly is the form of market structure in which there are few big sellers of the commodity and large number of buyers. Each seller has a significant share of the market.

Characteristics:

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p<>{color:#000;}. Few Big firms and large number of buyers: In oligopoly there are few big firms in the market in terms of investment, capital, etc and with large number of buyers.

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p<>{color:#000;}. High Degree of Interdependence: Each firm has a significant share in the market and the decision of one firm may result in the loss to that firm. So, while taking decisions in the oligopoly market with our strategies we also have to keep their plans in our mind.

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p<>{color:#000;}. Non determination of Demand curve: As the firms are interdependent in oligopoly the desired results of some strategies cannot be achieved because of counter response of another firm. Eg If Firm A decreases its price to increase the demand but on contrary Firm B has decreased priced more the demand of Firm A will not rise. So, the demand curve is Indeterminate.

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p<>{color:#000;}. Formation of Cartels: Cartels consists of group of firms which have explicitly agreed to work together to increase their profit. In Cartel price and output is commonly decided by all the firms. Eg OPEC is a cartel of oil producing nations and the price of oil has considerably rise many time which was difficult without it.

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p<>{color:#000;}. Entry Barriers: There are certain barriers to entry in oligopoly which include investment, capital, economies of scale, etc which stops new firms from entering into the market as this requires a strong financial stand.

Shape of Demand Curve

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p<>{color:#000;}. Perfect Competition: Under perfect Competition demand curve is horizontal to OX axis as any number of quantity can be sold at same price OP.

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p<>{color:#000;}. Monopolistic Competition: In monopolistic competition demand curve is downward sloping because to sale additional unit of good producer must decrease the price as there are substitutes available of the product.

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p<>{color:#000;}. Monopoly: In Monopoly, demand curve is downward sloping as the producer has to decrease the price to increase the demand but it is relatively less elastic as no substitutes are available in the market.

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p<>{color:#000;}. Oligopoly: In oligopoly market there is indeterminate demand curve. As the firms are interdependent in oligopoly the desired results of some strategies cannot be achieved because of counter response of another firm. Eg If Firm A decreases its price to increase the demand but on contrary Firm B has decreased priced more the demand of Firm A will not rise.


The Beginner Guide to economics: Markets and Forms of Market

This book explains the various concepts of market and its structures.So,that the beginners can easily understand the concept and for the professionals,this will help in adding to their knowledge. If you are even new to this topic then too this book will guide you whole about the Market and its for.

  • Author: Paul Jordan
  • Published: 2016-05-16 20:20:07
  • Words: 1541
The Beginner Guide to economics: Markets and Forms of Market The Beginner Guide to economics: Markets and Forms of Market