Question

Discuss the main assumptions of perfect competition and monopolistic competition.

Discuss the impact of Covid-19 on small grocery stores. Compare this with big businesses like Woolworths and Coles. Highlight the impact of the crisis using the models on market structure (hint: think of models on perfect competition, monopoly, monopolistic competition, oligopoly).

Answer 1

Assumptions of a perfectly competitive market:

• A large number of buyers and sellers.
• Firms are price takers only.
• Homogenous product.
• No selling cost.
• No entry or exit barriers.

Assumptions of monopolistically market:

• A large number of buyers and sellers.
• firms produce close substitutes.
• The selling cost is very high here.
• Buyers do not have full information about the market.

During the COVID-19, people are avoiding gathering in big malls and departmental stores. thus small grocery stores are booming or the demand at the small stores has increased as the social distancing is appropriately maintained in these small grocery stores.

Further, COVID is causing the market to move towards the perfectly competitive, the prices of all products are down and almost similar. People are not being lured by the product differentiations. Further, the producers are also not worried about the differentiation in the product. All firms are trying to survive in the market with zero economic profit. There are hardy any instances where firms are competiting for the market shares.