Market refers to the arrangement by which the buyers and sellers of a particular commodity come into contact with each other to strike a deal and to have an economic exchange about the quantity and the price which is to be bought and sold. It is not necessary for a market to be a particular place.
The type of market where the firms or the producers operate is known as market structure. Before we understand further concepts of market, let us take note of its classification for help in homework or assignment help in Economics.
Classification of market: –
Market structure which has a larger number of producers who produces a homogeneous product so that there can be no individual firm
who could influence the price of the commodity, is known as perfect competition. The following are the features of perfect competition:
Large number of buyers and sellers:
Seller supplies a very small portion of market supply. Hence, any change of supply by single seller will not affect market supply. A single buyer consumes a small amount of market supply so the entry or exit of a consumer will not affect the market supply.
Therefore, the firms are price taker while industry is price maker. Implication shows neither buyer nor seller is able to influence price of a commodity.
The firms under the perfect competition makes a production of homogeneous products. These products are homogeneous not only in their physical characteristics such as color, design, quality, size, chemical components, etc.
but also homogeneous in environmental factors such as credit facilities, location of the seller, etc. it means that no firm has any basis of charging higher prices for its product.
Thus, firm are price take and uniform price prevails and the firm has to sell at a price which is determine by the entire industry in the market.
Freedom of entry and exit:
No restriction (legal, natural or man-made) are impose on the entry of the firm into the industry or exit of the firm form the industry.
Freedom of entry and exit of a firm from an industry ensure that firm are earning normal profit in the long run. If in an industry, firm earn abnormal profit, due to freedom of entry or exit new firm join an industry, as a result abnormal profits are wiped out and firm starts earning normal profit.
On the contrary, if the existing firms are going through a loss, some of them would leave the industry, as a result the remaining industry will start earning normal profits.
Monopoly refers to a market structure which has only a single seller or sole producer for the product, which does not have any close substitute. The following are the features of monopoly:
Single seller in a monopoly signifies that there is only one firm who is producing and supplying the entire market supply in an economy. Therefore, the single producer is in a position to determine and influence the price of a commodity. Hence, the firm is a price maker rather than price taker.
Absence of close substitute:
The product which is produce a monopolist does not have any close substitute. Close substitute refer to the good which are available at near the same price and are easily use.
Monopoly has high barriers to entry such as natural, man-made or legal in the form of copy rights, patent rights, economies of scale, government law, etc.
Due to this there is nor competition in the market as these barriers provide power to the monopolist. Therefore, abnormal profit are earn the monopolist in the long run.
It refer to the market which has a large number of seller to produce a particular commodity , which has each seller who is sell a bit of differentiate product in comparison to the product which is sell other seller.
Larger number of buyers and sellers:
Firms under monopolistic competition deals in differentiated product that’s why they can follow their independent pricing policy and make their own price and output decisions.
That is why firm are consider as price make since they have some power to influence price of commodity.
Each firm in monopolistic competition produce a product which is slightly different from the product which are produce its competitor.
The product, first is differentiate on the basis of its physical character such as size, color, quality, design, difference in package, etc.
And secondly on the basis of conditions which surrounds the sale of a product such as reputation of the seller, courtesy, credit facility, location of the seller, efficiency, trust worthiness, etc.
Independent price policy:
Firms of monopolistic competition follows independent price policy due to which it makes its own price and output decisions. Hence, it has the power to influence the commodity’s price. Therefore, the firm is a price maker rather than price taker.
Oligopoly refer to a market structure
which has few firms to sell a product which leads to intense competition among them.
For example, electronic products, baby foods, soft drinks, vegetable oils, automobiles, etc.
Monopsony refers to a situation in which there is a single buyer for the product
who does not have any competition with other buyers about the product
which it has purchased, and this market makes entry into the market impossible.
For example, when government purchase variety of good relate to defense requirement,
then it is a monopsonist in the market as these defense relate good have demand only one buyer which is the government.
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These different market structures and their features are mandatory to be understood keeping in mind the understanding of the market in any economy and to get help in homework or assignment help in Economy.