Market According to benham “ market is any area over which buyer & seller are in close touch with one another either directly or through dealers, that the price obtainable in one part of the market affects the price paid in other parts”.
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Market
According to benham “ market is any area over which buyer & seller are in close touch with one another either directly or through dealers, that the price obtainable in one part of the market affects the price paid in other parts”.
Classification of markets
Classification by the area Classification by the nature of transaction Classification b y the volume of business Classification on the basis of time Classification by the status of seller Classification by regulation Classification on the basis of market structure
Classification on the basis of market structure Perfect competition Monopoly Monopolistic competition Oligopoly
Perfect Competition
Many buyer/sellers +
Identical Products
Perfect competition
Features Free entry and exit to industry Homogenous product – identical so no consumer preference Large number of buyers and sellers – no individual seller can
influence price Sellers are price takers – have to accept the market price Perfect information available to buyers and sellers
Price & output determination (normal profit)
COST /REVENUE
OUTPUT
AR=MR
MC
A
AC
P
Q
In short run (super normal profit)
SUPER NORMAL PROFIT
COST /REVENUE
OUTPUTY
AR=MR
MC
A
AC
B
P
Q
C
In short run (LOSSES)
COST /REVENUE
OUTPUTY
AR=MR
MC
A
AC
Q
C
lossesD
B
Monopoly
FEATURES: High barriers to entry Firm controls price OR output/supply Abnormal profits in long run Possibility of price discrimination Consumer choice limited Prices in excess of MC
IN SHORT RUN(NORMAL PROFIT)
COST & REVENUE
OUT PUT
AR
MR
MC
A
P
Q
AC
K
IN SHORT RUN(SUPER NORMAL PROFIT)
COST & REVENUE
OUT PUT
AR
MR
MC
A
Super normal profitAC
KS
Q
IN SHORT RUN(LOSSES)
COST & REVENUE
OUT PUT
AR
MR
MC
A
P
Q
LOSSES ST
AC
Q
T
Monopolistic Competition
Same as pure competition except for product differentiationLarge number of buyers and sellers
Gap Levis Old Navy
MONOPOLISTIC COMPITITION
Features:- Many buyers and sellers Products differentiated Relatively free entry and exit Each firm may have a tiny ‘monopoly’ because of the
differentiation of their product Firm has some control over price
IN SHORT RUN(NORMAL PROFIT)
COST & REVENUE
OUT PUT
AR
MR
MC
A
P
Q
ACQ
Oligopoly
Few producers control supply and price
Oligopoly
Features Industry dominated by small number of large firms Many firms may make up the industry High barriers to entry Products could be highly differentiated – branding or homogenous Non–price competition Price stability within the market - kinked demand curve? Potential for collusion? Abnormal profits High degree of interdependence between firms
Market StructureKinked Demand Curve
Price
Quantity
D = elastic
D = Inelastic
Kinked D Curve
K
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