Classification of Market Structure and Its Importance

1552 Words Oct 4th, 2014 7 Pages


In an economy, goods and services are produced for the ultimate satisfaction of the consumers. Therefore, all finished goods and services must be sold to the consumers. The process of exchange of these goods is essential. Thus, market is such a place where buyers and sellers gather in order to buy and sell a particular good or commodity. The term market refers not necessarily to a place but always to a commodity and the buyers and sellers who are not in direct competition with one another.

CLASSIFICATION OF MARKETS Generally, the determination of price and output depends on the type the market. In a market, the products are produced, sold and
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Under Perfect Competitionthe firm is in equilibrium at point M1, AR=MR=AC=MC. The equilibrium output is OQ2.
On the other hand monopoly firm is in equilibrium point at M where MC=MR.
The equilibrium output is OQ1. The monopoly output is lower than perfectly competitive firm output.

Price Discrimination
Price discrimination refers to the charging of different prices by the monopolist for the same product. He may charge different prices for different customers for the same product. Or in different markets, monopolist may charge differently.
Price discrimination is possible only when elasticity of demand will be different in different markets. Where demand is inelastic they will charge higher price, low price where demand is elastic. –In some cases discrimination is legally sanctioned, for example railways charges different rates for the transport of coal and copper.

Monopolistic competition refers to a market situation where there are mny sellers of a commodity but the product of each seller is not identical. No seller can have any perceptible influence on the price output policies of the other seller nor can he be influenced by their action. For example, if we go to buy a tooth brush, we can choose from wide variety including rubber grip and plastic grip, diamond shaped and rectangle shaped, zig zag shaped and many others.
There are a large number of buyers and sellers. (buyers not

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