Examine Business Markets
Learning Aim D (Part of 2nd Assignment)
D1-Different Market Structures
●
Perfect Competition -Those businesses which all supply exactly the same product at the same
price, such as newspapers.
•There are no barriers to entry as the number of suppliers, producers and customers are unlimited.
The below criteria defines the perfect competition
• All firms sell an identical product
• All firms are price takers ( when a company has to accept the price of a product in the wider
market)
• All firms have small market share
Buyers know the nature of the product being sold and prices charged by each firm
• The industry is characterised by freedom of entry ( business has freedom to enter or leave the
market at will due to the number of buyers and sellers)
D1
●
Imperfect Competition
Cont..
•This type of market structure faces less competition than businesses fitting the perfect
structure.
•There will be many sellers of the same item, their product lines are not identical. Therefore the
business can determine their own price. For example H Samuel and Goldsmiths jewellers.
The differences between perfect and imperfect competition are based on:
•Number of size of the producers of the products being sold
•Number of customers buying the product or service the business offers
•Types of products or services
•The effectiveness of communicating or marketing the products and services
Which Market you think is better for the growth of the economy and why?
Types of imperfect
● Monopoly (only one seller) ● Oligopoly (few sellers of goods) ● Monopolistic competition (many sellers with highly
differentiated product)
● Monopsony (only one buyer of a product)
Pricing and output decisions cont..
Monopolistic Market/Competition-form of market structure
where large number of independent businesses are supplying products that
are slightly differentiated from the point of view of buyers. Ex- Persil, Ariel
etc
Features:
● As these brands are close competitors, there is a keen competition.
● There are neither any legal nor any economic barriers against the entry
of new firms into the market. New firms are free to enter the market
and existing firms are free to leave the market.
● Product differentiation is the only factor which differentiates it from
Perfect market.
● Price determinant factor would be demand/quality/customer loyalty
D2-Relationship between Demand, Supply
and Price
● Influences on Demand○ Affordability
○ Price
○ Competition
○ Substitutes
○ Level of Gross Domestic Product - eg income level
○ Needs and aspirations of consumers
How many of the above factors would have an impact if you are planning
to buy
A) A phone
B) Meal
Pricing and output decisions cont..
Oligopoly- there are only few firms and everyone is aware about
their independence. As the number of competitors are small each
firm has considerable amount of share. Effect of change in the
price of any firm will have noticeable effect on others as well. ExAircraft manufacturing, banking etc
Features:
● Behaviour of these firms are interdependent and not
independent
● New entry is difficult.
D2-Relationship between Demand, Supply
and Price cont..
● Influences on Supply
○ Availability of raw materials and labour
○ Logistics
○ Ability to produce profitably
○ Competition for raw materials
○ Government support
D2-Relationship between Demand, Supply
and Price cont..
● Elasticity
○ Price elasticity of demand- measures the response in
change in demand after change in price.
■ Necessity
■ Brand loyalty
■ Substitute
■ Cost of switching suppliers
Price elasticity of demand = % change in quantity demand
-------------------------% change in price
What impact would Economy have if Supply is not coping up
with the demand?
Who would be in the most advantageous situation?
D3-Pricing and output decisions
Pricing Decisions
Determinants of Price Under Perfect Competition
Market price is determined by the equilibrium between demand and supply in a market period or
very short run.
a) Market price for perishable commodity - It cannot be stored for the next market period and
therefore the whole of it must be sold away on the same day whatever the price may be.
b) Market price for non-perishable commodity - In case of non-perishable but reproducible
goods, some of the goods can be preserved or kept back from the market and carried over to
the next market period. There will then be two critical price levels.
The first, if price is very high the seller will be prepared to sell the whole stock. The second level
is set by a low price at which the seller would not sell any amount in the present market period, but
will hold back the whole stock for some better time. The price below which the seller will refuse to
sell is called the Reserve Price.