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 out-of-town stores

sellers can use other sales media

The business world’s equivalent of consumer markets:

business organisations sell to other businesses

not to a final consumer

these other businesses use what they’ve 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.

• Many sellers selling the identical products to many buyers.

Perfect Competition

• Many sellers offering differentiated goods to many buyers.

Monopolistic Competition

• Single seller producing for many buyers. Monopoly

• Mainly 2 big players or firms dominating the market Duopoly

• Few sellers selling competing products for many buyers. Oligopoly

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

18-12

Characteristics

Pure

Competition

Monopolistic

Competition

Oligopoly

Monopoly

Number of competitors Many Few to many Few No direct competitors

Ease of entry into

industry by new firms

Easy Somewhat

Difficult

Difficult Regulated by

government

Similarity of goods or

services offered by

competing firms

Similar Different Can be either

similar or

different

No directly competing

goods or service

Control over prices by

individual firms

None

Some Some Considerable

Demand curves facing

individual firms

Totally elastic

Can be either

elastic or

inelastic

Kinked;

inelastic below

kink; more

elastic above

Can be either elastic or

inelastic

Examples

2000-acre

ranch

Banana

Republic

BP Commonwealth Edison

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, it’s 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.

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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:-

Price

Quantity

P

P1

Q1 Q2 Q

E1

D

D1

S

An decrese in the demand:-

Price

Quantity

P1

P

Q1 Q2 Q

E1

D

D1

S

E

Simultaneous Change in Demand And Supply