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 Market
Entry?
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
Restricted
Restricted
Easy to enter
Perfect Information
Many
Many
Many
Easy to obtain
Free entry
Heterogeneous
Heterogeneous
Homogeneous
A few dominant sellers
Many
Many
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07/16/96
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4 features: in Elementary Economics P189
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07/16/96
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Li Ka Shing vs Cheung Yu Tong
