25. What is pure competition?

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 product. 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.

A pure competitive market, according to economists, requires all of the following conditions:

1)Many buyers and sellers.

2)Identical goods or services offered for sale.

3)No buyer or seller knows more than any other about the market.

4)Buyers and sellers are able to enter or leave the market at will.

The NYSE, NASDAQ, and other similar securities markets are good examples of pure competition.

26. What is monopolistic competition?

Monopolistic competition is a form of imperfect competition where many competing producers sell products that are differentiated from one another (that is, the products are substitutes, but, with differences such as branding, are not exactly alike).

Monopolistically competitive markets have the following characteristics:

There are many producers and many consumers in a given market, and no business has total control over the market price.

Consumers perceive that there are non-price differences among the competitors' products.

There are few barriers to entry and exit.

Producers have a degree of control over price.

In many markets, producers practice product differentiation by altering the physical composition, using special packaging, or simply claiming to have superior products based on brand images and advertising. Toothpastes and toilet papers are examples of differentiated products.

27. What is monopoly?

A monopoly is a market structure in which a single supplier produces and sells the product.

Monopolies have the following characteristics:

A single seller or monopolist. In a monopoly there is one seller of the monopolised product who produces all the output. Therefore, the whole market is being served by a single firm, and for practical purposes, the firm is the same as the industry.

No close substitutes. The product sold by a monopoly is different from those offered by other firms. Buyers must either pay the monopolist’s price or do without.

Barriers to entry. Competing firms are unable to enter a market where a monopoly exists.

In a monopoly, however, supply is determined by a single firm. This gives that firm the power to select any price it chooses along the demand curve. Which price will it choose? The one that yields the greatest profit.

28. What is demand?

In economic theory, demand is a consumer’s willingness and ability to buy a product or service at a particular time and place. If you would love to own a new pair of athletic shoes but can’t afford them, economists would describe your feeling as desire, not demand. If, however, you had the money and were ready to spend it in shoes, you would be included in their demand calculations.

The law of demand describes relationship between prices and quantity of goods and services that would be purchased at each price. It says that all else being equal, more items will be sold at a lower price than at a higher price.

A demand schedule is a table showing the quantities of a product that would be purchased at various prices at a given time.