Types of market

Question 1

What is a market?

Answer 1

A market is any place where the sellers of a particular good or service can meet with the buyers of that good or service where there is a potential for a transaction (sale) takes place when the buyer and seller agree on a price

Question 2

What is competition?

Answer 2

When sellers compete with one another to offer the best product at the best prices. Buyers compete to buy products that are scarce or in demand

Question 3

Name the 4 main types of market

Answer 3

• Perfect competition
• Monopoly
• Perfect monopoly
• Oligopoly

Question 4

What is perfect competition?

Answer 4

• This market does not exist in its purist form
• It is a theory which other markets can be compared
• Perfect competition occurs when neither the buyers nor the sellers can influence the price of the product
• Under perfect competition the price is determined by demand and supply
• Consumers demand products and producers supply the products
• Under perfect competition no firm will charge more for their product as they will lose all their customers

Question 5

When is perfect competition possible?

Answer 5

• There must be a large amount of buyers and sellers of a product or service
• There must be no collusion between sellers
• All the goods sold on the market must be identical
• Buyers and sellers must be free to enter and leave the market
• Buyers and sellers must have access to knowledge regarding the market conditions
• There must be no government intervention influencing buyers and sellers
• The factors of production must be allowed to move from one market to another

Question 6

What is the closest a market can get to perfect competition?

Answer 6

International commodities

Question 7

What is a monopoly?

Answer 7

• The extreme of a perfect market
• There is only one seller of the goods or service
• A monopolistic firm can fix its prices at which it sells
• The quantity sold depends on the market demand

Question 8

What is monopolistic competition?

Answer 8

• A market type between the extremes of monopoly and perfect competition
• This type of market combines features from these two markets

Question 9

What is oligopoly?

Answer 9

• Under oligopoly a few large firm dominate the market
• The most common type of market in todays economics
• These companies compete with one another in the fields of production development and advertising