Large Number of Buyers and Sellers
Large Number of Buyers and Sellers
Large Number of Buyers and Sellers
A.1] A Perfectly Competitive market constitutes a large number of buyers and sellers
engaged in transaction of the homogenous products. Perfect Competition is a market where
various firms selling identical products exist along with a large number of buyers who are
well aware of the prices. The best examples of the Perfect Competition market, in the Indian
context, would be the secondary market for food grains, vegetables and fruits as there are
large number of buyers and sellers and the products are homogenous or identical in nature.
A.2] Imperfect Competition is a competitive market where a large number of sellers are
engaged in selling heterogenous (dissimilar) goods as opposed to the Perfectly Competitive
market. The concept of Imperfect Competition was first explained by an English economist,
Joan Robinson. Therefore, producers can influence the price of the product they are offering
for sale. Imperfect Competition can be classified into three categories:
1. Monopolistic Competition
2. Oligopoly
3. Monopoly
A.4] Oligopoly is a type of imperfect competition, wherein there are few sellers dealing
wither in homogeneous or differentiated products. The term oligopoly has been derived from
the two Greek words, oligoi means few and poly means control. Thus, it means the control of
the few organisations in the market. For example, oligopoly in India exists in the aviation
industry where there are just few players, search as Kingfisher, Air India, Spice Jet, Indigo,
etc. All these airlines depend on each other for setting their pricing policies. This is because
the prices are affected by the prices of the competitors’ products.
In oligopoly market structure, the interdependency of organisations may either lead to
conflicts or cooperation among sellers.
A.5] The Cartel Model can be defined as a special case of oligopoly in which rival firms in an
industry come together as a cartel to create formal agreements to make decisions to attain
high profits. The formation of a cartel is more applicable to oligopoly where there are a small
number of firms. Organisations that form cartel come to an agreement on issues, such as price
fixing, total industry output, market share, the allocation of customers, the allocation of
territories, bid rigging, establishment of common sales agencies and the division of profits. In
a cartel, all the firms sell at the same price, and each organization set its individual production
volume for sale, so that the marginal cost of operation remains same. The most important
example of an effective cartel is the Organization of Petroleum Exporting Countries (OPEC),
which was formed at the Baghdad Conference on 10-14 September, 1960. The aim of the
0PEC to coordinate the policies of oil producing countries in a way that the member states
receive a steady income. The member states also collude to influence the prices of oil all over
the world. Presently, there are 12 member countries in OPEC cartel.
A.6] Monopoly can be defined as a market structure, wherein a single producer or seller has a
control on the entire market. The term monopoly has been derived from a Greek word,
Monopolian, which means a single seller. In monopoly, a single seller deals in the products
that have no close substitutes in the market and demand, supply and prices of a product are
controlled by a single seller. Therefore, the slope of the demand curve moves downwards
towards the right. A common example of a monopoly is Indian Railways, which has control
of railroad transportation. Some important characteristics of monopoly are:
Q.7] What is meant by price discrimination and what are its types?
A.7] It is generally observed that different prices are charged from various users by a
monopolist to achieve more profits. This policy of charging different prices by a monopolist
is known as price discrimination. In simple words, price discrimination is charging different
prices from buyers by monopolists. Price discrimination can be classified into three times.
These are:
A.8] Market power can be defined as the ability of an organization to raise the market price
of a good or service over marginal cost to achieve profits. It can also be defined as the degree
of control an organization has over the price and output of a product in the market. A firm
with total market power is in a position to raise the prices without any loss of customers. This
type of control generally occurs in imperfect competition. Organisations having total market
power are also known as price makers. On the contrary, organizations have no market power
in perfectly competitive markets. Such organisations are known as price takers.
In the market, the share of an organization can be determined by measuring its market power.
The most common measure for data mining, the market power is concentration ratio. Please
ratios are used to determine the degree of control of firms in the market. Concentration ratios
can be defined as a measure of market power in relation to the size of the business form with
that of product size. Terra, two types of concentration ratio. Pause. Four from concentration
ratio and eight from concentration ratio.
For firm concentration ratio, it can be defined as the fraction of output produced by the top.
For organisations in an industry. For example, market share of various search engines at the
global level are given as follows. Google 91.99% bring. 2.75% Yahoo 1.8% by 21.68%
Yandex Ru 0.49% on Yandex 0.36%. Hence, in this case for firm concentration ratios will be
calculated as 91.99% + 2.75% + 1.8% + 1.68%, which is equal to 98.22%. It means the top
four forms, namely Google, Bing, Yahoo, and Baidu has captured 98.22% market share and
this shows high level of concentration.
Eight firm concentration ratio. 8 firm concentration ratio can be defined as the fraction of
output produced by the top 8 organisations in an industry. For example. Soft drink market.
Share of various popular brands in Johnson County of United States are given as follows.
Only cola, 23% juice up 17.5% super soda 11.2825% king caffeine 9.5% Megha Cola
6.7515% homes hometown brew. 4.35 Frosty grape 3.6% cooler effect. 3.7 53.15% on others.
21.5% hence in this case it firm concentration ratios will be calculated as 23% + 17. 55%.
Class 9.5% class. 11.25% toss 6.15% class 4.35. Plus 3.6% class 3.15% which is equal to
82.85%. It means that the top it forms, namely Omni Cola. Juice up. Super soda. Kenji Café
Mega cola.
What are the three fundamental questions that represent the basic economic problem?
Draw and explain what is meant by the production possibility curve (PPC).