Market
A market is any structure that allows buyers and sellers to exchange goods, services, or information.
The exchange of goods or services, with or without money, is called a transaction.
Competition
Competition is the effort of firms to attract customers and achieve their objectives.
The four main market structures are:
- Perfect Competition
- Monopolistic Competition
- Oligopoly
- Monopoly
Perfect and Imperfect Competition
Perfect Competition
A market with:
- Many buyers and sellers
- Identical products
- Well-informed buyers and sellers
- Free entry and exit
Firms are price takers.
Imperfect Competition
Markets where firms have some control over price because of factors such as product differentiation or a small number of competitors.
Includes:
- Monopolistic Competition
- Oligopoly
- Monopoly
Barriers to Entry
Barriers to entry are factors that make it difficult for new firms to enter a market.
Examples:
- High start-up costs
- Technological requirements
- Patents
- Control over important resources
- Legal restrictions
Worked Examples
Identifying a Market Structure
A market has many small firms selling homogeneous products. Identify its market structure.
Solution Reveal Hide
The market is perfectly competitive. Many small firms are price takers selling identical products.
Monopolistic competition also has many firms, but its products are differentiated.
