MARKET STRUCTURE

A market is where buyers and sellers: meet to exchange goods and services usually in exchange for money

The market may be in one specific place or not exist physically at all Refers to a group of actual & potential buyers of a product or service, where the sellers can approach through various means of communication & transport

Markets can exist: over telephone lines online in emails As long as what happens involves buyers and sellers in a business transaction

 As per Curton Economist understand by the term

market not any particular market-place in which things are bought & sold but the whole of any region in which buyers & sellers are in such a free intercourse with one another that the price of the same goods tends to equality easily & quickly. As per Chapman The term market refers not necessarily to a place but always to a commodity & the buyers & sellers who are in direct contact with one another.

COMMODITY

BUYERS & SELLERS

AREA

CLOSE CONTACT

COMPETITION

 Reactors which contribute towards the

extension of a market: Nature of the commodity Size of production

Extent of demand
Means of communication & transport

Peace & security

Currency & credit system Trade policies of the countries.

You should be familiar with these: consumers interact with sellers to buy goods and services sellers can be retailers using high street shops or outof-town stores sellers can use other sales media

The business worlds equivalent of consumer markets: business organisations sell to other businesses not to a final consumer these other businesses use what theyve bought to make new products

 Economist have defined & classified markets n the

four bases: The number of buyers & sellers Nature of commodity produced by the sellers Degree of freedom in the movements of goods & factors

of production Knowledge of buyers & sellers regarding the prices in the market.

Perfect Competition Monopolistic Competition

Many sellers selling the products to many buyers.

Many sellers offering goods to many buyers.

identical

differentiated

Monopoly Duopoly
Oligopoly

Single seller producing for many buyers. Mainly 2 big players dominating the market or firms

Few sellers selling competing products for many buyers.

 Determinants of market structure Freedom of entry and exit Nature of the product homogenous (identical), differentiated? Control over supply/output Control over price Barriers to entry

 Distinguishing features of the Four Market Structures

Pure Competition
Many
Easy

Characteristics
Number of competitors
Ease of entry into industry by new firms

Monopolistic Competition
Few to many
Somewhat Difficult

Oligopoly
Few
Difficult

Monopoly
No direct competitors
Regulated by government

Similarity of goods or services offered by competing firms

Control over prices by individual firms Demand curves facing individual firms

Similar

Different

Can be either similar or different

Some Kinked; inelastic below kink; more elastic above BP

No directly competing goods or service

Considerable Can be either elastic or inelastic

None Totally elastic

Some Can be either elastic or inelastic Banana Republic

Examples

2000-acre ranch

Commonwealth Edison

18-12

 Total Revenue = P(Price) X Q(Quantity)

Average Revenue= Total Revenue/Quantity

OR

AR = (P x Q)/ Q = P

Marginal Revenue = TRn TR n-1

 Principle 1:- A firm should not produce at all if

total revenue from its product does not equal or exceed its total variable cost.

Principle 2:- it will be profitable for the form to

expand output whenever marginal revenue is greater than marginal cost, & keep on expanding output till MR = MC

 In a competitive market, its the interaction

between demand & supply.

Need to match the demand with the supply or

vice-versa in order to achieve the equilibrium point between the quantity demanded & quantity supplied on the same price.

Equilibrium occurs at a price of $3 and a quantity of 30 units.

OnlineTexts.com p. 16

A. An increase in demand ( shift to right) B. An decrease in demand (shift to left)

C. An increase in supply ( Shift to right)

D. An decrease in supply ( shift to left)

 An increase in the demand:S

E1 P1 Price P D1 D Q2 Q Q1

Quantity

 An decrese in the demand:S

E P

E1
Price P1

D
D1 Q2 Q1 Q

Quantity

 Simultaneous

Change Demand And Supply

in