Topic: markets and market structures

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 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.

To monopolize means to keep something for oneself. A person who monopolized a conversation, for example, generally is trying to stand out from everyone else and thus attract attention.

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.

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.

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.

These three types of monopoly are distinct from the sole trading opportunities which take place because certain companies have obtained complete control over particular commodities. This action is often called «cornering the market» and is illegal in many countries. In the USA anti-trust laws operate to restrict such activities, while in Britain the Monopolies Commission examines all special arrangements and mergers which might lead to undesirable monopolies.

U N I T 10

Topic: demand

Most people think of demand as being the desire for a certain economic product. That desire must be coupled with the ability and willingness to pay.

In economics the relationship of demand and price is expressed by the Law of Demand. It says that the demand for an economic product varies inversely with its price.

The correlation between demand and price does not happen by chance. For consumers price is an obstacle to buying, so when prices fall, the more consumers buy.

The demand for some products is such that consumers do care about changes in price when they buy a great many more units of product because of a relatively small reduction in price. The demand for the product is said to be elastic.

For other products the demand is largely inelastic. This means that a change in price causes only a small change in the quantity demanded.

Elasticity of supply, as a response to changes in price, is related to demand. Economists define demand as a consumer’s desire or want, together with his willingness to pay for what he wants.. Money has no value in itself, but serves as a means of exchange between commodities which do have a value to us.

People very seldom have everything they want. Usually we have to decide carefully how we spend our income. When we exercise our choice, we do so according to our personal scale of preferences. In this scale of preferences essential commodities come then the kind of luxuries which help us to be comfortable and finally those non-essentials which give us personal pleasure

The demand curve is the graphical representation of the demand function, i.e., of the relationship between price and demand. It tells us how many units of a particular commodity or service would be bought at various prices, assuming that all other factors (such as the incomes of the demanders and the prices of substitutes) remain unchanged. The demand curve normally slopes downwards from left to right, which means that more is bought at low prices than at higher prices. A famous exception to the rule of a downward-sloping demand curve is the Giffen paradox. If the condition that all other factors remain unchanged is relaxed and the incomes of the demanders, for instance, are allowed to change, then the whole demand curve will shift its position.

U N I T 11