CHAPTER 5

Question 1

Market Meaning:

Answer 1

In economics, market refers to an arrangement through which buyers and sellers come in contact with each other directly or indirectly and an exchange of goods and services takes place among them.

Question 2

At any point of time, a market will exist if there are:

Answer 2

1) Buyers and sellers
2) A product or service to be bought and sold
3) Price of the product
4) Close contact between buyers and sellers
5) Knowledge about market

Question 3

Perfect Competition:

Answer 3

In a perfect competition market structure, a multitude of buyers and sellers exchange a uniform product freely. Producers encounter a perfectly elastic demand curve, allowing them to sell any quantity at the prevailing market price. Both buyers and sellers have perfect knowledge of market conditions.

Question 4

Features of Perfect Competition:

Answer 4

Large number of sellers and buyers
Homogeneous Product
Free entry and exit
Single Price
Perfect knowledge of Market
Perfect mobility of Factors of Production
Absence of transport cost
No government intervention

Question 5

Monopoly:

Answer 5

The term monopoly is derived from the Greek word ‘Mono’ which means single and ‘poly’ which means seller. Monopoly is a market in which there is only one seller who controls the entire market supply for a product which has no close substitute.

Question 6

Features of Monopoly:

Answer 6

Single Seller
No close substitutes
Barriers to Entry
Complete control over market supply
Price maker
Price discrimination
No distinction between firm and industry

Question 7

Types of Monopoly:

Answer 7

Private monopoly
Public monopoly
Legal monopoly
Natural monopoly
Simple Monopoly
Discriminating Monopoly
Voluntary Monopoly

Question 8

Perfect Competition Definition by Mrs. Joan Robinson:

Answer 8

“Perfect Competition prevails when the demand for the output of each producer is perfectly elastic”

Question 9

Oligopoly meaning:

Answer 9

Made from the Greek words ‘Oligo’ meaning few and ‘poly’ meaning seller, it is a market where a few sellers sell homogeneous or differentiated products which are close substitutes of each other. E.g Cement Companies, Baby Foods.

Question 10

Features of Oligopoly:

Answer 10

Few Firms or Sellers
Interdependence
Advertising
Entry Barriers
Lack of Uniformity
Uncertainty

Question 11

Monopolistic Competition definition:

Answer 11

Monopolistic Competition refers to competition among a large number of sellers producing close but not perfect substitutes.

Question 12

Features of Monopolistic Competition:

Answer 12

Fairly large number of Sellers
Fairly large number of buyers
Product Differentiation
Free entry and exit
Selling Cost
Concept of Group