Question

2. Explain the different market structures using graphs and verbal explanations. Provide an example of each market. Why monopolies arise and what governments can do in face of monopolies?

answer must contain a brief introduction to concepts and facts, a part of analysis and critical evaluation and final conclusions.

Answer 1

Market Form-1 : Perfect Competition

It refers to a market structure where there are large number of buyers and sellers in the market dealing with the homogenous products with the constant price.

Features :

• Large of buyers and sellers
• Homogenous Products
• Freedom of entry and exit
• Perfect knowledge about the market
• Absence of Selling Cost

In case of Perfect competition,firm is known as Price- Taker and the Industry is known as Price-Maker.The demand curve will be horizontal in case of Perfect Competition.

Case 2 : Monopoly

Monopoly refers to a situation where there is only single seller selling a product with no close substitute.Features of Monopoly :

• Singel Seller
• No close substitute
• Price Discrimination
• Price Maker
• Restrictions of entry and exit

In case of Monopoly , the industry is a firm and it is both Price taker and Price Maker.

In order to control Monopolies, the government can regulate it in following ways:

• Price Capping
• Check on the abuse of Monopoly Power
• Regulation on quality of services

Case 3 : Monopolistic Competition

It refers to a market structure where there are large number of firms selling differentiated but closely related goods.

Features:

• Large of Sellers
• Product Differentiation
• Non-Price Competition
• Selling Cost
• Freedom of entry and exit

Case 4 : Oligopoly

It refers to a market situation where there are few firms selling differentiated or homogeneous products.

Features :

• Few Firms
• Non-Price Competition
• Barriers of entry
• Selling Cost