Posts tagged microeconomics

List of Definitions for Section 2

1. Market is a place where the consumers and the suppliers meet together. Here, the resources are allocated through the price mechanism. The price and the quantity demanded are determined by the equilibrium price. However, a market does not need to be a physical place where people meet face-to-face. Online shopping is one example of how the market is formed without requiring the consumers and the suppliers to meet face-to-face.

2. Structure of Market in the spectrum of competition

  • Perfect Competition occurs where there are many competitors who produce the same product and the market sets the price.
  • Monopoly occurs when there is only one supplier for the market. These monopolists set the price and profits very highly. They may set as many barriers as they can to stop other possible competitors from entering the market they are in control of.
  • Monopolistic Competition occurs when the market has both the characteristics of perfect competition and monopoly.
  • Oligopoly occurs when there are just few competitors in the market. However, they have interdependence to each other. Also, they may spend a lot of money on advertisement and promotion.

Summary of market types

Type of Market

Number of Firms

Freedom of Entry

Nature of Product

Examples

Demand Curve for Firms

Perfect competition

Many

Unrestricted

Homogenous

(undifferentiated)

Cabbages

Carrots

Horizontal

the firm is a price-taker

Monopolistic competition

Many, Several

Unrestricted

Differentiated

Plumbers

Restaurants

Downward sloping, relatively elastic, some control over price

Oligopoly

Few

Restricted

Undifferentiated or Differentiated

Cement

Cars

Kinked

Monopoly

One

Restricted or Completely blocked

Unique

Local water companies

Downward sloping, inelastic, considerable control over pric

Table Obtained from Triple A Text

3. Demand is defined as ‘that quantity of a good or service that would be bought at each and every price over a period of time’. Must include these three factors:

  • The desire for a product
  • A willingness to pay for it
  • The ability to pay for it

4. Supply is defined as the quantity of goods and services that will be supplied to the market at various prices over a given period of time. These are some of the determinants of supply:

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