Market DEMAND

Market SUPPLY
LAW OF DEMAND
LAW OF SUPPLY
EQUILIBRIUM
ELASTICITY
Market
Structur
es
Market
Market refers to any place or process
involved with the exchange of goods and
services.
There are 4 basic types of market by
traditional economic analysis and they are:
1. Perfect competition
2. Monopolistic competition
3. Oligopoly
4. Monopoly
 Perfect
Competiti
on
What is Perfect Competition?
Perfect competition is characterized by many buyers
and sellers, many products that are similar in nature
and, as a result, many substitutes.
Main Characteristics of Perfect Competition
1. There is perfect knowledge, with no information
failure or time lags in the flow of information.
2. Given that producers and consumers have perfect
knowledge, it is assumed that they make rational
decisions to maximize their self-interest.
3. There are no barriers to entry in or exit out of the
market.
5. Each unit of input, like labor, are also
homogeneous.
6. No single firm can influence the market price, or
market conditions.
7. There are very many firms in the market which
are too many to measure. As a result of no barriers
to entry.
8. There is no need for government regulation
except to make markets more competitive.
9. There are assumed to be no externalities.
10. Firms can only make normal profits in the long
Equilibrium in perfect competition is the
point where market demands will be equal
market supply. A firm's price will be
determined at this point. In the short run,
equilibrium will be affected by demand. In
the long run, both demand and supply of a
product will affect the equilibrium in perfect
competition. A firm will receive only normal
profit in the long run at the equilibrium
Monopoli
stic
Competiti
What is Monopolistic Competition?
Monopolistic competition occurs when a large number of
firms price and sell differentiated products that are close
substitutes to each other.
Features of Monopolistic Competition
The following are features of monopolistic competition.
1. Many firms: There is relatively large number of firms in
the market. Such firms produce close substitutes and compete
with each other. Stiff competition exists between firms and
they share market demand.
2. Product differentiation: the products produced are not
identical. They are slightly different from each other. Despite
this, they remain close substitutes, therefore, their prices are
3. Freedom of entry and exit: As in perfect
competition, businesses have freedom to enter
and exit an industry. When existing firms make
super profits, the new firms enter the industry to
produce close substitutes and exit once these
super profits are no longer available. Because of
this firms in the market earn normal profits in
the long run.
4. Non-price competition: Business use means
other than price to complete. This is a common
feature in monopolistic competition, so
OLIGOP
OLY
What is Oligopoly?
An oligopoly is a market dominated by a few
large firms. It falls between a monopoly and
monopolistic competition. In this market, a small
number of firms account for a large proportion of
output and employment. Firms within the
oligopoly produce branded yy and each seller
competes with the others. The actions of one firm
can influence the actions of its competitors. This
is called rivalry. Advertising and marketing are
A high degree of dependence exists among the
businesses in their decision making: firms in the
market react to the behavior of their competitors.
They compete for market share using price and
non-price competition. Price competition
involves discounts. Non-price competition
includes special services to customers such as
loyalty cards, home deliveries, extensions of
opening hours, special offers and entertainment
facilities in shopping outlets. High entry barriers
exist because existing firms have achieved
Features of Oligopoly Market
1. A relatively small number of firms in the industry
that dominate the market.
2. Differentiated products
3. Mutual interdependence of businesses
4. Relatively high barriers to entry due to economies
of scale
5. Businesses in the market earn super profits in the
long run
Examples of oligopolies include: - Nike and
Reebok- sports shoe products, - Coca Cola and
Pepsi – soft drinks
MONOP
OLY
What is Monopoly?
In a monopoly market a single producer or seller of a
product that has no close substitutes controls the market.
This is the least competitive situation, so it is very hard
for a true monopoly to exist. A monopolist has no
competitors.
Features of Monopoly
The following are the features of a monopoly
market.
1. Strong barriers to entry. It is usually very difficult to
keep others out of a market which is capable of earing
super profit, such as a monopoly. Government
intervention may be needed in the form of legal barriers.
2. Imperfect knowledge
3. No advertising. There is no need to
defer customers away from a competitor,
as there is noclose substitute good or
service.
4. One seller
5. The sole seller offers a product for
which there is no close substitute.
6. Strong control over price or quantity.