Micro Econ Research Paper Sample
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A market can have different structures depending on different characteristics of competition within that particular market. A perfectly competitive market is at one extreme, where there are several consumers and producers, with no barriers to entry or exit the market, perfect information regarding goods, homogeneous products, and property rights of individuals. This gives birth to a system where no individual economic factor is able to affect the prices of goods, which means producers are price takers, it’s their choice how much quantity to produce, but they cannot decide the market price at which they can sell their products.
In the real world, only some of the industries in a market are perfectly competitive, but others are close substitutes. For example, for a single commodity there may be many buyers and sellers. But there are some of the differences in quality of goods which varies between firms. Thus goods can easily be also substituted goods are so simple that buyers and sellers both have perfect information regarding that. The producers in a perfect competition do not raise their prices above the market price because if they do so they wouldn’t be able to find a buyer, thus they are price takers.
Examples of perfect competition
It is difficult to find out exact industries in the real world which have perfect knowledge and perfect information, but some of them which do, are listed below
Foreign exchange markets: All currencies are homogeneous. Traders involve many buyers and sellers. Almost perfect information about relative prices. Comparison of prices while buying currency is easy.
Agricultural markets: Several farmers in some of the cases, sell identical products to the market, such as wheat, sugarcane, rice, etc. Comparing prices is always easy, while buyers and sellers have perfect knowledge regarding prices of their commodities. ('Market Differences Between Monopoly And Perfect Competition')
A monopoly is a kind of market structure where just one seller/producer exists, but buyers are many. Monopolies take place where there is a lack of economic competition and incentives to produce goods and services, also a lack of substitute goods available. Consequently, the single producer takes control of the prices of the good as well as the supply, which means producer is a price maker and decides himself what price he will charge at a particular quantity. People would have to buy at that price because there will be no substitutes available, unlike the perfect competition. Public good companies can be monopolies. For example, the electricity production in many countries is nationalized and a single producer, not many. That is because the costs to set up the whole infrastructure for electricity production is very high, and if more than one provider were there it would be inefficient.
Examples of monopoly from real world are
Software House: Microsoft, the biggest software house which dominates in the U.S.
Cable television- The sole provider which provides cables to all households
The U.S. Postal Service- ('Monopoly Vs Perfect Competition')
An oligopoly is a type of market structure where there are a few number of companies that dominate a market. These companies are the companies with a huge market share of the market. Entry and exit in such type of a market structure are different because the new companies usually do not have a lot of money for heavy investment, as much as the companies which are set up now, do. Companies in pharmaceuticals, health insurance, and technology, are successful in establishing oligopolies in the U.S.
Most of the output sold in the market is only by few large firms
Actions of a single firm would affect decisions of other firms, to respond in comparison to the competitor. Unlike perfect competition and monopoly, here the decisions of one firm do affect the quantity produced or price of another firm goods.
The sellers strategically interact with each other
Entry and exit are more difficult unlike perfect competition but somehow similar to monopoly
Barriers to entry restrict the number of sellers from entering the market
Oligopolies experience lower cost per unit as compared to other firms that're how they have greater market share in the market
Industries which are examples of oligopolies include:
Market structure which has 3 main characteristic
In this type of market structure, each firm is able to make its own decisions rather than relying on decisions of other firms, unlike oligopoly. Decisions include decisions regarding output and price, costs of production and market.
There is a widespread of knowledge amongst participants, but the knowledge would be imperfect, unlike the perfect competition.
There are many sellers and buyers
Sellers offer differentiated product
Entry and exit of the market are easy
Products are homogenous
Buyer is a price taker while sellers are price makers
Examples of monopolistic competition:
Monopolistically competitive firms are most common type of in industries where differentiation in products is possible, like
Hotels and pubs
The restaurant business
Consumer services, such as hairdressing
General specialist retailing - ('Monopolistic Competition And Oligopoly')
'Market Differences Between Monopoly And Perfect Competition.' Boundless (2014): n. pag. Web. 22 Apr. 2015.
'Monopoly Vs Perfect Competition.' N.p., 2015. Web. 22 Apr. 2015.
'Monopolistic Competition And Oligopoly.' N.p., 2015. Web. 22 Apr. 2015.
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