The Concept of Market

A market is the place or context in

which buyers and sellers buy and
sell goods, services and
resources. Thus, the market for a
particular good consists of all the
buyers and sellers of that good.

PRINCIPLES OF ECONOMICS UMaT, TARKWA, GHANA 1

 PERFECT COMPETITION
Conditions for Perfect Competition

1. Many sellers and buyers

2. They must produce homogeneous product
3. There must be complete and perfect information (perfect knowledge in
the market)
4. There must be complete mobility - free entry and exit - perfect mobility
of factors of production and of consumers.

PRINCIPLES OF ECONOMICS 2
UMaT, TARKWA, GHANA
 PEFERCT COMPETITION
Other attributes are:

1. They compete to increase output at lower price

2. Each surviving firm produces at lower cost
3. Fast response to changing market conditions
4. Scarcity of funds for research and development
5. Price taker

PRINCIPLES OF ECONOMICS 3
UMaT, TARKWA, GHANA
PERFECT COMPETITION

MC

PRICE AC
&
COST

P D = AR = MR

O
QUANTITY Q

PRINCIPLES OF ECONOMICS 4
UMaT, TARKWA, GHANA
PERFECT COMPETITION

MC

PRICE AC
&
COST

P D = AR = MR

O
QUANTITY Q

PRINCIPLES OF ECONOMICS 5
UMaT, TARKWA, GHANA
 MONOPOLY
Attributes of Monopoly
1. A single firm (seller) producing too little output
compared to production from many competing
firms
2. It provides unique good or service
3. There is information barrier, i.e. it may have
information that is not available to other firms
wanting to enter the industry.
4. Lack of mobility or barrier to entry

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UMaT, TARKWA, GHANA
 MONOPOLY
Other Attributes

1. Higher price and often higher

production cost than under perfect
competition.
2. Less pressure for technical
advancement, although sufficient
funds for research and development
may be available.
3. Slow response to changing market
conditions.
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UMaT, TARKWA, GHANA
Characteristics of Monopoly
MC

AC

B
P

A
D

MR=MC
MR

O
Q

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UMaT, TARKWA, GHANA
 ENTRY RESTRICTIONS
The restriction on entry which make
monopoly power possible are:

1. Concentration of raw materials

2. Technical barriers
3. Legal Barriers
4. Transport costs and tarrifs

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UMaT, TARKWA, GHANA
MONOPOLISTIC COMPETITION

1. Many buyer and sellers

2. Differentiated products
3. Sufficient knowledge
4. Free entry

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UMaT, TARKWA, GHANA
 OLIGOPOLLY

1. A few large interdependent firms, spreading their

high capital costs over a large volume.
2. High barriers to entry based on capital costs and
access to technology.
3. Little price competition and rigid price so as to cover
full production costs.
4. Coordination among firms in settling market shares.
5. Higher prices than under competition.
6. Non price competition, through advertising, service,
or credit arrangement.

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UMaT, TARKWA, GHANA
 PRICE DISCRIMINATION
Three basic conditions are necessary:
1.The seller must be able to control the
supply
2.The seller must be able to prevent those
paying lower prices reselling to those
buying at higher prices
3.The demand conditions in the separate
markets must be different
PRINCIPLES OF ECONOMICS 12
UMaT, TARKWA, GHANA
OTHER MARKET CONDITIONS

• Arbitrage
• Speculation
• Hedging
• Collusion and Cartels

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UMaT, TARKWA, GHANA