24. How do economists classify markets?

Economists classify markets according to conditions that prevail in them. They ask questions like the following: How many supplies are there? How large are they? Do they have any influence over price? How much competition is there between firms? What kind of economic product is involved? Are all firms in the market selling exactly the same product, or simply similar one? Is it easy or difficult for new firms to enter the market? The answer to these questions helps to determine market structure, or the nature and degree of competition among firms operating in the same market.

In short, markets can be classified according to certain structural characteristics that are shared by most firms in the market. Economists have names for these different market structures: pure competition, monopolistic competition², oligopoly, and monopoly.

25. What is pure competition?

markets can be classified according to certain structural characteristics that are shared by most firms in the market. Economists have names for these different market structures: pure competition, monopolistic competition, oligopoly, and monopoly.

An important category of economic markets is pure competition. This is a market situation in which there are many independent and well-informed buyers and sellers of exactly the same economic products. Each buyer and seller acts independently. They depend on forces in the market to determine price. If they are not willing to accept this price, they do not have to do business. individual participants have no affect on market price and quantity. Pure competition characterized by free flow of information, and free entry and exit. Agricultural products such as potatoes and wheat are examples of competitively sold products.

26. What is monopolistic competition?

markets can be classified according to certain structural characteristics that are shared by most firms in the market. Economists have names for these different market structures: pure competition, monopolistic competition², oligopoly, and monopoly.

all the conditions of pure competition may be met except that the products for sale are not exactly the same. By making its product a little different, a firm may try to attract more customers and take over the economic market. When this happens, the market situation is called monopolistic competition.

The one thing that separates monopolistic competition from pure competition is product differentiation⁷. The differences among the products may be real, or imaginary. If the seller can differentiate a product, the price may be raised a little above the market price, but not too much.

27. What is monopoly?

In some markets there may only be one seller or a very limited number of sellers. Such a situation is called a monopoly, and may arise from a variety of different causes. It is possible to distinguish in practice four kinds of monopoly.

State planning and central control of the economy often mean that a state government has the monopoly of important goods and services. Some countries have state monopolies in basic commodities like steel and transport, while other countries have monopolies in such comparatively unimportant commodities as matches.

A different kind of monopoly arises when a country, through geographical and geological circumstances, has control over major natural resources or important services. Such monopolies can be called natural monopolies.

They are very different from legal monopolies, where the law of a country permits certain producers, authors and inventors a full monopoly over the sale of their own products.