NAZARETH HIGH SCHOOL OF BANSALAN, INC.

Nazareno Street, Barangay Poblacion Uno

Municipality of Bansalan
Province of Davao del Sur

MODULE 5. Market Structures

Applied Economics Learning Module

APPLIED ECONOMICS
Module5 Lesson 6

Market Structures

NAME OF THE STUDENT:

GRADE AND SECTION:

MODULE 4. Market Structures

Applied Economics Learning Module

LESSON 5 Market Structures

LEARNING MODULE FOR APPLIED ECONOMICS

 NAZARETH HIGH SCHOOL OF BANSALAN, INC.
Nazareno Street, Barangay Poblacion Uno
Municipality of Bansalan
Province of Davao del Sur

LEARNING COMPENTENCIES:
Differentiate various market structures in terms of :(a) number of sellers ,(b) types of product,
(c) entry/exit to market, (e) others

PRETEST
Directions: Encircle the correct answer.

1. 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.
2. 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 b. Monopolistic competition
b. Oligopoly d. Monopoly
3. Which of the following market types has the fewest number of firms?
a. Perfect competition b. Monopolistic competition
c. Oligopoly d. Monopoly
4. Which of the following market types has a large number of firms that sell similar but
slightly different products?
a. perfect competition b. monopolistic competition
c. oligopoly d. monopoly
5. Which of the following market types has only a few competing firms?
a. perfect competition b. monopolistic competition
c. monopoly d. oligopoly

EQUIP LESSON MARKET STRUCTURES

What Is A Market?

Place where there are many buyers and sellers . Actively engaged in
buying and selling acts. Thus, It does not mean a particular place but the
entire area where buyers and sellers of a commodity are in close
contact and they have one price of same commodity.

WHAT ARE MARKET STRUCTURES?

‘’Market Structures’’ refer to the different market characteristics that determine relations
between sellers to each another, of sellers to buyers and more. There are several basic defining
characteristics of a market structure, such as the following:
 The commodity or item that’s sold and the extent of production differentiation.
 The ease or difficulty of entering and exiting the market.
 The distribution of market share for the largest firms.
 The number of companies in the market.
 The number of buyers and how they work with or against the sellers to dictate price and
quantity.
 The relationship between sellers.
As we have seen, in economics the definition of a market has a very wide scope. So
understandably not all market are the same or similar. We can characterize market structures

LEARNING MODULE FOR APPLIED ECONOMICS

 NAZARETH HIGH SCHOOL OF BANSALAN, INC.
Nazareno Street, Barangay Poblacion Uno
Municipality of Bansalan
Province of Davao del Sur

based on the competition levels and the nature of these markets. Let us study the four basic types
of market structures.
TYPES OF MARKET STRUCTURES
S
T A variety of market structures will characterize an
A economy. Such market structures essentially refer to the degree of
C competition in a market.
K
There are other determinants of market structures such as the
nature of the goods and products, the number of sellers, number of consumers, the nature of the
product or services, economies of scale etc. We will discuss the four basic types of market
structures in any economy.
One thing to remember is that not all these types of market structuresactually exist. Some
of them are just theoretical concepts. But they help us understand the principles behind the
classification of market structures.(Source:BusinessJargons)

1.PERFECT COMPETITION

In a perfect competition market structures, there are a large number of buyers and sellers.
All the sellers of the market are small sellers in competition with each other. There is no one big
seller with any significant influence on the market. So all the firms in such a market are price
takers.
There are certain assumptions when discussing the perfect competition. This is the reason
a perfect competition market is pretty much a theoretical concept. These assumptions are as
follows:
 The products on the market are homogeneous, i.e they are completely identical
 All firms only have the motive of profit maximization
 There is free entry and exit from the market, i.e there are no barriers
 And there is no concept of consumer preference

CHARACTERISTICS:

Large number of buyers and sellers or small firms Homogeneous product or identical goods
No barriers to entry Perfect knowledge of the market  Absence of price control

2. MONOPOLISTIC COMPETITION
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 NAZARETH HIGH SCHOOL OF BANSALAN, INC.
Nazareno Street, Barangay Poblacion Uno
Municipality of Bansalan
Province of Davao del Sur

This is a more realistic scenario that actually occurs in the real world. In monopolistic
competition, there are still a large number of buyers as well as sellers. But they all do not sell
homogenous products. The products are similar but all sellers sell slightly differentiatedproducts.

Now the consumers have the preference of choosing on product over another. The
Sellers can also charge a marginally higher price since they may enjoy some market power. So
the sellers become the price setters to a certain extent.
For example, the market for cereals is a monopolistic competition. The products are all similar
but slightly differentiated in terms of taste and flavours.

CHARACTERISTICS:

Large number of firms Product differentiation Freedom of entry and exit

Pricing Decision Non Price Competition  Close substitutes

3. OLIGOPOLY

In a oligopoly, there are only a few firms in the market. While there is no clarify about
the number of firms, 3-5 dominant firms are considered the norm. So the case of an oligopoly,
the buyers are far greater than the sellers.

The firms in this case either compete with another to collaborate together. They use their
market influence to set the prices and in turn maximize their profits. So the consumers become
the price takers. In an oligopoly, there are various barriers to entry in the market, and new firms
find it difficult to establish themselves.
CHARACT

R
D

4. MONOPOLY
In a monopoly type of market structures, there is only one sellers, so a single firm will
control the entire market. It can set any price it wishes since it has all the market power.
Consumers do not have any alternative and must pay the price set by the seller.

Monopolies are extremely undesirable. Here the consumer loose all their power and
market forces become irrelevant. However, a pure monopoly is very rare in reality.

CHARACTERISTICS:

LEARNING MODULE FOR APPLIED ECONOMICS

 NAZARETH HIGH SCHOOL OF BANSALAN, INC.
Nazareno Street, Barangay Poblacion Uno
Municipality of Bansalan
Province of Davao del Sur

Sole supplier of the product  Large number of buyers No close substitutes
 One firm industry Absence of entry Monopolist is price maker

Directions: In a separate sheet, kindly answer

M the following questions.
I
S 1.Explain and differentiate the four market structures and
S give examples.
I 2. Explain monopoly and monopsony where one is
O about a single buyer while the other is about a single
N seller.

REMEMBER:

Summative Assessment (Multiple Choice )

CHECKPOINT!

Directions: Encircle the correct answer.

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

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 NAZARETH HIGH SCHOOL OF BANSALAN, INC.
Nazareno Street, Barangay Poblacion Uno
Municipality of Bansalan
Province of Davao del Sur

2. If the market demand curve for a commodity has a negative slope then the market
structure must be :
A. Perfect competition B. monopoly C. imperfect competition
D. the market structure cannot be determined from the information given
3. If a firm sells its output on a market that is characterized by a many sellers and buyers, a
homogeneous product, unlimited long-run resource mobility, and perfect knowledge ,
then the firm is a :
A. A monopolist B. An oligopolist
C. A perfect competitor D. A monopolistic competitor
4. If a firm sells its output on a market that is characterized by a single seller and many
buyers of a homogeneous product for which there are no close substitutes and barriers to
long-run resource mobility, then the firm is:
A. A monopolist B.An oligopolist C. A perfect competitor
D. A monopolistic competitor
5. If a firm sells its output on a market that is characterized by many sellers and buyers, a
differentiated product , and unlimited long-run resource mobility, then firm is:
A. A monopolist B.An oligopolist
C. A perfect competitor D. A monopolistic competitor
6. If a firm sells its output on a market that is characterized by few sellers and many buyers
and limited long-run resource mobility, then the firm is:
A. A monopolist B. An oligopolist
C. A perfect competitor D. A monopolistic competitor
7. 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
8. Which of the following markets comes close to satisfying the assumptions of a perfectly
competitive market structure?
A. The stock market
B. The market for agricultural commodities such as wheat or com
C. The market for petroleum and natural gas
D. All of the above come close to satisfying the assumptions of perfect competition
9. 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
10. Which of the following is a barrier to entry that typically results in monopoly?
A. The firm controls the entire supply of a raw material.
B. Production of the industry’s product is subject to economies of scale over a board
range of output.
C. Production of the industry’s product requires a large initial capital investment.
D. The firm holds an exclusive government franchise.

LEARNING MODULE FOR APPLIED ECONOMICS

NAZARETH HIGH SCHOOL OF BANSALAN, INC.
Nazareno Street, Barangay Poblacion Uno
Municipality of Bansalan
Province of Davao del Sur

LEARNING MODULE FOR APPLIED ECONOMICS