Question

2. Identify the four market models, describe them individually, and then compare and contrast them with one another.

Answer 1

The 4 market models are as follows:-

1) Perfect competition

There are number of firms producing standardized product. All the products are homogenous in nature. There is freedom of entry and exit to the market. In perfect competition, an individual firm is the price taker as he has to accept the price set by the market. The primary reason that there are many firms is that there is no barriers to entry and exit. Example of perfect competition are Gold market.

2) Monopoly competition

There is only one seller of a commodity selling goods which donot have no substitutes. As the market is ruled by just one firm this results to barriers to entry into the market. Due to this a pure monopoly faces least competition. The price is the price maker as he can charge any price because he is the soul producer of the perticular commodity. One of the best example for a monopoly is the production of operating systems by Microsoft.

3) Monopolistic competition

It is much like pure competition in that there are many suppliers and the barriers to entry are low. However the suppliers try to achieve some price advantage by diffrentiating their products from other similar products. There is freedom for entry and exit. A monopolistic firm can sell large quantities of product by lowering price that's why its demand curve is downward sloping. Example of monopolistic market can be toothpaste and soap companies.

4) Oligopoly

it is a market dominated by a few suppliers. Although demand and supply influence all markets, prices and output by an oligopoly is based on strategic desicions( Expected response to other firm's desicion in the market. There is a high barrier to entry limits the number of suppliers that can compete in the market so the oligopolistic firms have considerable influence over the market price of their products. For example Automobile manufactuers.

# I am hereby providing a proper tabular presentation where you can easilly compare and contrast the 4 market models.

Basis	Perfect Competition	Monopoly	Monopolistic Competition	Oligopoly
Number of firms	Very large number of firms	Only one seller of a commodity	Large number of firms	Few firms or few large firms producing most of the industry's product
Nature of product	The products are homogenous	There are no substitute for the product produced	Firms produce diffrentiated products	Firms may produce homogenous products( perfect oligopoly) or diffrentiated product( imperfect oligopoly)
Mobility of firms	Freedom to firms to enter or to leave the industry	Sufficient restrictions prevent new firms to enter the market	There is free entry and exit to firms.	Barriers( such as patents, large capital) prevent entry of firms into industry)
Firm's influence over price	An individual firm is the price taker since he can not influence the market price determined at the industry level	A monopolist is a price maker because he has perfect knowledge of the market demand curve.	Buyers treat the products produced by different firms to be differnt. So an individul firm has some influence over the market price of the product it produces.	Firms try to avoid price competition for the fear of price war. Price of the product is rigid.
Demand curve	A perfectly competitive firm can sell more quantity of output at the same price. Therefore the demand curve is a horizontal line since demand curve is perfectly elastic	The monopoly firm can sell a larger quantity of output only at a lower price. Therefore demand curve is downward sloping. Demand is inelastic since there is no substitutes.	Demand curve is downward sloping because more quantity can be sold only at a lower price. Moreover the demand is very elastic because there are many close substitutes of the product	The demand curve takes the shape of a " kinked demand curve "

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