Chapter 7 Flashcards
It is a place where goods are being bought and sold. In economics, it is a place where buyers and sellers are exchanging goods and services with the following consideration.
Market
Following considerations to be called market:
-Types of goods and services being traded;
-The number and size of buyers and sellers in the market.
-The degree to which information can flow freely.
2 Types of Market Structure
Perfect and Imperfect Market
It is a market situation which
consists of a very large number of buyers and sellers offering a
homogenous product.
Under such condition, no firm can affect the market price.
Perfect Market
It is built on two critical
assumptions: the behavior of an individual firm, and
the nature of the industry in which it operates.
Perfect Competition
It cannot be found in the real world.
Perfect Competition
For perfect competition to exist, the ff. condition must be observed and required:
- A large number of sellers, each acting independently and not colliding with any other.
- Serving a homogeneous product.
- No artificial restriction placed upon price or quantity.
- Easy entry and exit.
- All buyers and sellers have perfect knowledge of market conditions and any changes that occur in the market.
- Firms are “Price Taker”
It is a market situation wherein the conditions necessary for perfect competition are not satisfied.
Imperfect Market
Forms of Imperfect Market
-Monopoly
-Oligopoly
-Monopolistic
The term monopoly comes from the Greek words “monos” means
“one”
“polein” which means “________”, there is only one seller of goods and services.
to sell
Only one producer in the industry, hence, there is a lack of economic competition
and viable substitute for the goods and services that they provide.
Monopoly
The “____________” can influence and has considerate control over the price. should be distinguished from a “cartel”.
monopolist
It should be distinguished from a “cartel”.
Monopoly
The following sources of Monopoly:
- There is only one producer or seller of goods and only one provider of services in the market.
- New firms find extreme difficulty in entering the market.
- There is no available substitute so that a product or
service is considered unique. - It controls the total supply of raw materials in the industry
and has control over price. - It owns a patent or copyright.
- Its operations are under economics of scale.
Classification of Monopoly
- Natural Monopoly
- Legal Monopoly
- Coercive Monopoly
A single firm can supply the entire market due to the fundamental cost structure of the industry.
Natural Monopoly
This is sometimes called as “de jure monopoly” a form of monopoly which the government grants to a private individual or firm over the
product or service.
Legal Monopoly
It is a form of monopoly whose existence as the sole producer and distributor of goods and services is by means of coercion (legal or illegal).
Coercive Monopoly
The word comes from the Greek word “oligos” means ______
“few”
It is a market situation in which there is a small number of seller. All decisions depends
on how the firm behave in relation to each other.
Oligopoly
The characteristic of Oligopoly includes:
- There is small number of firms in the market selling differentiated or identical
products. - The firm has control over price.
- There is an extreme difficulty for new competition to enter the market
Types of Oligopoly
- Pure Oligopoly
- Differentiated Oligopoly
Few sellers that produce identical products.
Example: cement, sugar, and other raw materials.
PURE OLIGOPOLY
Few sellers of differentiated products.
Example: telecommunication (Digitel, Globe, Smart), airline, and shipping industries because of the numerous characteristics of their services.
DIFFERENTIATED OLIGOPOLY
Types of Organization of Oligopoly
- Cartel
- Collusion
-to set up monopoly price
-allocate output
-share profit among members
CARTEL
It refers to a market situation in
which forms agree to cooperate with one another to behave as if they were a single firm and thus eliminate competitive behavior among them.
CARTEL
To adopt policies that will
restrict or reduce level of
competition in the market.
COLLUSION
This is a situation in which there are many sellers producing highly differentiated products.
Under this condition, there is a
competition because many sellers offer products that are close, but not perfect substitute for each other.
Example: shampoo, deodorant, candy
Monopolistic Competition
Characteristics of Monopolistic Competitions:
- A large number of buyers and sellers in a given market act independently.
- There is limited control of price because of product
differentiation. - Sellers suffer differentiated or similar products but not
identical products. - New firms can enter the market easily.
It is a market situation where there is only one buyer of good and services in the market. It is sometimes considered analogous monopoly in which there is only one seller of goods and services the market.
Monopsony
This is a market situation where there is a small number of buyers. This is usually with a small number of firm competing to obtain factors of production.
Oligopsony
The demand curve faced by a firm for its product shows the quantity that it can sell at different possible prices, all other things being held constant. It is also known as the sales curve.
Its nature depends on the type of market in which the firm sells.
Market Structures
Market Types
- Perfect/pure competition
- Monopoly
- Monopolistic competition
- Oligopoly
Determinants of Market Structure
- Government laws and policies
- Technology
- Business policies and practices
- Economic freedom
BASED ON THE NUMBER OF BUYER AND SELLER
- Perfect Competition - large number of buyers and sellers
- Monopoly - single seller
- Monopolistic Competition - relatively large number of sellers
- Oligopoly - few sellers
BASED ON PRICING
- Perfect Competition - no one can influence the price
- Monopoly - price maker
- Monopolistic Competition - limited control over the price
- Oligopoly - price agreement among sellers
BASED ON THE KINDS OF PRODUCT
- Perfect Competition - homogenous product
- Monopoly - unique or no close substitute
- Monopolistic Competition - differentiated product
- Oligopoly - identical or differentiated
BASED ON THE ENTRY AND EXIT
- Perfect Competition - very easy to enter and exit to the market
- Monopoly - very difficult to enter to the market
- Monopolistic Competition - relatively easy to enter to the market
- Oligopoly - relatively difficult to enter to the market
BASED ON THE NON-PRICE COMPETITION
- Perfect Competition - non price competition
- Monopoly - maybe or no extensive non price competition
- Monopolistic Competition - aggressive non price competition
- Oligopoly - strong non price competition for differentiated products
