Elasticity of demand and market structures

However, such pricing behaviours are affected by many variables, such as those mentioned in this question, which are the input cost, consumer incomes and market concentration ratio. Explain what is meant by an imperfect market condition In the imperfect market structure, the firms are under the conditions where there is imperfect market information about price and production condition and immobility of resources where some firms may not be able to access certain resources. In this imperfect market condition, the firms in the respective types of industries will be classified as the monopolistic competitive, oligopolistic or monopolistic market structure where the forms of market structure is classified based on the number of firms in the industry, the nature of the product, the degree of barriers to entry to the industry. The characteristics of the market structure will affect the nature of competition and pricing behavior.

Elasticity of demand and market structures

Laissez-faire Market structure has historically emerged in two separate types of discussions in economics, that of Adam Smith on the one hand, and that of Karl Marx on the other hand.

Elasticity and Market Structure Price elasticity of supply The price elasticity of supply measures how the amount of a good that a supplier wishes to supply changes in response to a change in price. If the price elasticity of supply is zero the supply of a good supplied is "totally inelastic" and the quantity supplied is fixed.
Related BrainMass Content Classifying customers[ edit ] Successful price discrimination requires that companies separate consumers according to their willingness to buy. Determining a customer's willingness to buy a good is difficult.

Adam Smith in his writing on economics stressed the importance of laissez-faire principles outlining the operation of the market in the absence of dominant political mechanisms of control, while Karl Marx discussed the working of the market in the presence of a controlled economy sometimes referred to as a command economy in the literature.

Both types of market structure have been in historical evidence throughout the twentieth century and twenty-first century. Types[ edit ] The discussion of market structure in free economies as described by Adam Smith is often qualified or discussed in terms of patterns of market organization which serve the buyers and sellers in any particular form of the marketplace.

Some types of market structure may be described using several recurrent types of descriptive organizational mechanism which may or may not dominate any particular market over time or at particular points in time, such as; 1.

Monopolistic competitiona type of imperfect competition such that many producers sell products or services that are differentiated from one another e. In monopolistic competition, a firm takes the prices charged by its rivals as given and ignores the impact of its own prices on the prices of other.

This market structure exists when there are multiple sellers who are attempting to seem different than each other. Oligopoly, in which a market is run by a small number of firms that together control the majority of the market share. Duopolya special case of an oligopoly with two firms.

Monopsonywhen there is only a single buyer in a market. Oligopsonya market where many sellers can be present but meet only a few buyers. Monopoly, where there is only one provider of a product or service.

Natural monopolya monopoly in which economies of scale cause efficiency to increase continuously with the size of the firm. A firm is a natural monopoly if it is able to serve the entire market demand at a lower cost than any combination of two or more smaller, more specialized firms.

Purchase Solution

Perfect competition, a theoretical market structure that features low barriers to entryidentical products with no differentiation, an unlimited number of producers and consumers, and a perfectly elastic linear demand curve. The elements of Market Structure include the number and size distribution of firms, entry conditions, and the extent of differentiation.

These somewhat abstract concerns tend to determine some but not all details of a specific concrete market system where buyers and sellers actually meet and commit to trade.

In the absence of perfect competition, three basic approaches can be adopted to deal with problems related to the control of market power and an asymmetry between the government and the operator with respect to objectives and information:The interconnected characteristics of a market, such as the number and relative strength of buyers and sellers and degree of collusion among them, level and forms of competition, extent of product differentiation, and ease of entry into and exit from the market.

Four basic types of market structure are (1) Perfect competition: many buyers and sellers, none being able to influence prices. The reason for some consumers demand being relatively price inelastic caninariojana.comis of the case study for price elasticity of demand: The type of price elasticity which is discussed in the case study “Cheap wine changing Kiwis Drinking purchases” is elastic demand and inelastic demand as well.

Demand, Supply, Market Equilibrium and Elasticity. Demand, Supply, Market Equilibrium and Elasticity A. Elasticity of demand is shown when the demands for a service or goods vary according to the price.

Cross-price elasticity is shown by a change in the demand for an item relative to the change in the price of another.

Elasticity of demand and market structures

For substitutes, when there is a price increase of an item, there is an. Key Summary on Market Structures. Traditionally, the most important features of market structure are: The number of firms (including the scale and extent of foreign competition) The extent of product differentiation (which affects cross-price elasticity of demand).

Though considerable attention has been given to market structure, little research has been done on the relationship between market structure and elasticity structure.

demand curve, where demand is more inelastic, lower elasticity of 3, same marginal cost of $3 per unit. So the firm will look to where marginal revenue equals marginal cost, and.

Market structure - Wikipedia