APPLIED
ECONOMICS
MARKET STRUCTURES
Learning Objectives:
A. define market structure
B. differentiate the different types of
market structure; and
C. Explore the dynamic nature of
markets and how changes in market
structure can impact industry
evolution.
Market Structures
“Market structure refers to the nature and degree of
competition in the market for goods and services.
The structures of market both for goods market and
service (factor) market are determined by the nature
of competition prevailing in a particular market.”
In economics, the term “market” does not mean a
particular place but the whole area where the buyers
and sellers of a product are spread.
Market Structures
According to Prof. R. Chapman, “the term market refers
not necessarily to a place but always to a commodity and
the buyers and sellers who are in direct competition with
one another.”
In the words of A.A.. Cournot, “economists understand by
the term ‘market’, not any particular place in which things
are bought and sold but the whole of any region in which
buyers and sellers are in such free intercourse with one
another that the price of the same goods tends to equality,
easily and quickly.”
The essential features of a market
are:
(1) An area: in economics, a market does
not mean a particular place but the whole
region where sellers and buyers of a product
ate spread. Modem modes of
communication and transport have made the
market area for a product very wide.
The essential features of a market
are:
(2) One commodity: in economics, a market is
not related to a place but to a particular product.
Hence, there are separate markets for various
commodities.
For example, there are separate markets for
clothes, grains, jewellery, etc.
The essential features of a market
are:
(3)Buyers and sellers: advertisements: the presence
of buyers and sellers is necessary for the sale and
purchase of a product in the market.
• In the modem age, the presence of buyers and sellers
is not necessary in the market because they can do
transactions of goods through letters, telephones,
business representatives, internet, etc.
The essential features of a market
are:
(4) Free competition: there should
be free competition among buyers
and sellers in the market. This
competition is in relation to the
price determination of a product
among buyers and sellers.
The essential features of a market
are:
(5) One price: the price of a
product is the same in the
market because of free
competition among buyers and
sellers.
Different market structures:
1. Perfect competition market - this is
defined as a market structure with many
fully informed buyers and sellers, and
each sellers are selling identical
products, and there are no obstacles to
entry or exit from the market of firms in
Different market structures:
Different market structures:
2. Monopoly market – it is a market
structure where there is only one
producer and supplier with no close
substitutes.
- In this type of market a barrier exists
that prevents the entry of new firms.
Different market structures:
3. Duopoly - Duopoly is a special case of the theory of
oligopoly in which there are only two sellers. Both
the sellers are completely independent and no
agreement exists between them.
- Even though they are independent, a change in the
price and output of one will affect the other, and may
set a chain of reactions.
Different market structures:
Different market structures:
4. Oligopoly – a market type where
there are few firms that each behaves
independently, and competes.
Producers of almost similar products
like Eveready and Duracel batteries
maybe called as oligopolies.
Different market structures:
Different market structures:
5. Monopolistic competition – a
market structure with many firms
compete selling products that are
substitute products but slightly
different.
Different market structures:
EVALUATION
1. Which of the following is not a type of market
structure?
a. Competitive monopoly
b. Oligopoly
c. Perfect competition
d. All of the above are types of market structures
EVALUATION
2. If the market demand curve for a commodity has a
negative slope then the market structure must be.
a. perfect competitions
b. monopoly.
c. imperfect competition.
d. The market structure cannot be determined from the
information given.
EVALUATION
3. What is the difference between perfect competition and monopolistic
competition?
a. Perfect competition has a large number of small firms while monopolistic
competition does not.
b. In perfect competition, firms produce identical goods, while in
monopolistic competition, firms produce slightly different goods.
c. Perfect competition has no barriers to entry, while monopolistic
competition does.
d. Perfect competition has barriers to entry while monopolistic competition
does not.
EVALUATION
4. The market type known as perfect competition is
a. almost free from competition and firms earn large profits.
b. highly competitive and firms find it impossible to earn an
economic profit in the long run.
c. dominated by fierce advertising campaigns.
d. marked by firms continuously trying to change their products so
that consumers prefer their product to their competitors' products
EVALUATION
5. Which of the following market types has all firms selling
products so identical that buyers do not care from which
firm they buy?
a. perfect competition c. oligopoly
b. monopolistic competition d. monopoly
EVALUATION
6. Perfect competition is characterized by all of the following
EXCEPT
a. well-informed buyers and sellers with respect to prices.
b. a large number of buyers and sellers.
c. no restrictions on entry into or exit from the industry.
d. considerable advertising by individual firms.
EVALUATION
7. Which of the following is the best example of a perfectly
competitive market?
a. diamonds
b. athletic shoes
c. soft drinks
d. farming
EVALUATION
8. Which of the following market types has the fewest
number of firms?
a. perfect competition
b. monopolistic competition
c. monopoly
d. oligopoly
EVALUATION
9.If one perfectly competitive firm increases its level of
output, market supply
a. will increase and market price will fall.
b. will increase and market price will rise.
c. and market price will both remain constant.
d. will decrease and market price will rise.
EVALUATION
10. A perfectly competitive firm should reduce output or shut
down in the short run if market price is equal to marginal
cost and price is
a. greater than average total cost.
b. less than average total cost.
c. greater than average variable cost.
d. less than average variable cost.
EVALUATION
10. A perfectly competitive firm should reduce output or shut
down in the short run if market price is equal to marginal
cost and price is
a. greater than average total cost.
b. less than average total cost.
c. greater than average variable cost.
d. less than average variable cost.
