Dr.

Arpan Shrivastava
Concept
 It is a market with a large number of buyers and
sellers.
 Homogeneous products is sold.
 A uniform price prevails in the market.
 Price is dominated by the forces of market supply and
demand.
 An individual firm has no control over price.
Definition

Perfect competition is a form of the market where

there is a large number of buyers and sellers of a
commodity. Homogeneous products is sold with
no control over price by an individual firm.
Features of Perfect Competition
 Large number of Firms or Seller.
 Large number of Buyers.
 Homogeneous Products.
 Perfect Knowledge.
 Free Entry and Exit of Firms.
 Independent Decision-Making.
 Perfect Monopoly.
 No Extra Transport Cost.
Pure Competition

According to Prof. Chamberlin – Pure competition exist

if these conditions are satisfied:
 Large number of Buyers and Sellers.
 Homogeneous Products.
 Free Entry and Exit of the firms.
 Free from restrictions.
Monopoly
It is a form of the market in which there is a single
seller of a product with no close substitutes.

 Example: Indian Railways are a monopoly industry of

the Govt. of India. Since there is only one producer of a
product in the market, the distinction between ‘Firm’ and
‘Industry’.
Features of Monopoly

 One seller and Large number of Buyers.

 Restrictions on the Entry of New Firms.
 No Close Substitutes.
 Full Control Over Price.
 Price Discrimination.
Definition
Monopoly is a form of the market in which there is
a single seller or producer of a commodity. There
are no close substitutes of the monopoly product
and there are legal, technical or natural barriers
to the entry of new firms in the monopoly market.
A monopolist has complete control over price and
can also practice price discrimination.
How does a Monopoly Market Structure arise?

 Government Licensing / Government Control.

 Patent Rights.
 Cartels.
 Natural Occurrence.
Merits of Monopoly

 High level of Skill and Efficiency.

 High Level of Research and Development.
Demerits of Monopoly

 Less Output.
 High Price.
 Economic Concentration.
Monopolistic Competition
‘It is a form of the market in which there are many
sellers of the product, but the product of each seller
is somewhat different from that of the other’.

There are many sellers, selling a differentiated product.

Product differentiation is generally achieved through

trademark or brand name
Features of Monopolistic Competition
 Large Number of Buyers and Sellers.
 Product Differentiation.
 Freedom of Entry and Exit of Firms.
 Selling Cost.
 Less Mobility.
 Lack of Perfect Knowledge.
 Non-Price Competition.
 More Can be Sold Only at Lower Price.
Oligopoly
‘It is a form of market in which there is a few big
sellers of a commodity and a large number of
buyers. Such seller has a significant share of the
market’.

There is a high degree of interdependence among the

sellers regarding their price and output policy.

There is a severe competition in the market.

Features of Oligopoly
 A Few Firms.
 Large Number of Buyers.
 Barriers.
 High Degree of Interdependence.
 Not Possible to Determine Firm’s Demand Curve.
 Formation of Cartels.
Concept:
Market equilibrium is a situation of the market in
which demand for a commodity is exactly equal to its
supply, corresponding to a particular price.

Thus in a state of equilibrium, the market clears itself,

as market demand = market supply of commodity.
Market equilibrium implies:
 Equilibrium price which corresponds to the equality
between market demand and market supply of a
commodity.

 Equilibrium Quantity which corresponds to the

equilibrium price in the market.
Change in Demand and Market Equilibrium
 Change in demand has two aspects:
 Increase in demand.
 Decrease in demand.

Increase in Demand Decrease in Demand

D1 D
D E1 D2 E
P1 P
P P
r E r E2
P P2
i i
c c
D1 D
e e
D D2
O Q Q1 O Q2 Q
Quantity Quantity
Change in Demand & Equilibrium Price

 Some Exceptional Situation:

 When supply of the commodity is perfectly elastic.

 When supply of the commodity is perfectly inelastic.
 When supply of the commodity is perfectly elastic

Increase or Decrease in demand for a commodity

does not cause any change in its price in case
supply of the commodity is perfectly elastic.

Increase in Demand Decrease in Demand

D1 D
D D2
P P
r S E E1 S r S E2 E S
P P
i i
c c
D
e D1 e
D D2
O Q Q1 O Q2 Q
 When supply of the commodity is perfectly elastic

Increase of Decrease in demand cause a change in

price of the commodity. Equilibrium quantity
remains constant simply because supply is
perfectly inelastic.
Increase in Demand Decrease in Demand
S S
D1 D
D D2
P P
r E1 r E
P1
i i P
c E c
P2
e P e E2
D1
S D S D2 D
O Q O Q
Change in Supply & Market Equilibrium

 Like Demand, Change in supply has two aspects:

 Increase in supply
 Decrease in supply
Increase in Supply

Increase in Supply Decrease in Supply

S S2
D D
E S1 E2 S
P P2
P P
E1 E
r r
P1 P
i S i S2
c c
e D e D
S1 S

O Q Q1 O Q2 Q
Quantity Quantity
Decrease in Supply
 Some Exceptional Situation:

 When demand of the commodity is perfectly elastic.

 When demand of the commodity is perfectly inelastic.
When Demand is perfectly elastic.

Increase in Supply Decrease in Supply

S S1 S2 S

P P
r E E1 r E2 E
P D D P D D
i i
c S c S2
e S1 e S

O Q Q1 O Q2 Q
Quantity Quantity
When Demand is perfectly inelastic.

Increase in Supply Decrease in Supply

D D
S S2
S1 S
P P
r E r E2
P P2
i i
c P1 c P
e E1 e E
S1 S2
S
S
O Q O Q
Quantity Quantity
 Dr. Arpan Shrivastava
8889977119, Arpan_Shrivastava@pimrindore.ac.in