Concept Tour
What is a “MARKET” ?
What is a “MARKET” ?
In Economics, a Market is defined as a
context in which exchange of goods and
services between sellers and buyers takes
place.
A Market exists whenever a
transaction is made.
Four features:
1. Large No. of Buyers & Sellers
2. Homogeneous Products
3. Free Entry & Exit
4. Perfect Market Information
Large No. of Buyers & Sellers
• the action of an individual buyer or
seller is unable to affect the market
price
Buyers Sellers
Homogeneous Products
• the products in the market must be
identical in the eyes of consumers
Free Entry and Exit
• Firms are free to entry or leave the
market
Welcome to
Perfectly Competitive Market
Exit!!Entry!!
Perfect Market Information
• Buyers & Sellers know all market
information about goods .
Price Quality Quantity
Example:
• The stock exchange is a close example
Four Features:
• 1. Large No. of Buyers & Sellers
• 2. Differentiated Products
• 3. Free Entry & Exit
• 4. Imperfect Market Information
Same
as .
Same
as .
Product Differentiation
• A firm can use product differentiation to
promote sales.
Techniques are:
•new designs
•advertising
•branding
Imperfect Information of the Market
• Sellers & Buyers don’t have perfect info.
on price & quality of goods
Example:
• Rice is an example
Four features:
1. A Few Dominant Sellers
2. Similar but Differentiated Products
3. Entry is Restricted
4. Imperfect Market Information
Same as . & .
Few dominant sellers
• Oligopolies has to consider the
reactions of other firms before making
any decision
• price rigidity
• price leadership
• non-price competition
• Market behavior:
Similar but Differentiate Products
• the products are close substitutes to
one another
Entry is Restricted
• it is difficult because of government
regulation/huge capital/technological
requirements
Imperfectly Competitive MarketEntry?
Same as . & O.
Four Features:
1. Only One seller in the whole market
2. No close subsitiute
3. Highly Difficult (even impossible) to
Entry
4. Imperfect (highly restricted) Market
Information
Only One Seller in the Whole Market
• buyers can obtain the goods or
services from monopoly only
No Close Substitutes
• buyers are difficult to find another
goods to satisfy the same want
Highly Difficult (even impossible) to entry
• it is because of monopoly power
Sources of Monopoly Power
• government ownership
• government franchise
• ownership of important resources
• huge capital requirement
• economies of scale
No
Entry!!
• Examples
Monopoly Oligopoly Monopolistic Perfect
Competition Competition
1. No. of
sellers
2. No. of
buyers
3. Products
nature
4. Ease of
entry
5. Information
availability
One
Many
No close
substitute
Forbidden Restricted
RestrictedRestricted
Easy to enter
Perfect
Information
Many Many Many
Easy to obtain
Free entry
Heterogeneous Heterogeneous Homogeneous
A few dominant
sellers
Many Many
