Market structure is the interconnected characteristics of a market such as the number and relative strength of buyers and sellers, degree of collusion among them, and ease of entry into and exit in the market (Amos: 2000). Four basic types of market structure are: Perfect competition, Monopolistic competition, Oligopoly and Monopoly. This assignment is going to illustrate and discuss the implications of these market structures for price determination. Perfect competition
Perfect competition is an ideal market structure characterised by a large number of small firms, identical products sold by all firms, freedom of entry into and exit out of the industry and a perfect knowledge of prices and technology. Perfectly competitive firms are price takers they set a production level based on the price determinants in the market (Amos: 2000), meaning that price is determined by the forces of demand and supply of the industry. Equilibrium Price determination under perfect competition
A buyer represents demand side in the market. Every rational buyer aims at maximising his satisfaction by purchasing more at lower price and lower at high price. This is called law of demand. (Gaurav: 2010) A seller on the other side represents the supply side in the market and every rational seller on his side aims to increase his or her profits by selling more at higher prices and lesser at lower prices this is called the law of supply. (Gaurav: 2010). At a common price, a buyer is ready to demand a particular quantity of goods and a seller is also ready to supply exactly the same quantity that point is called equilibrium price and quantity. Equilibrium price is a price which equates both demand and supply
Sample Demand and Supply
Equilibrium price determination
* On X-axis quantity demanded and supplied per week is given and in the Y-axis price has been given. * Buyers are purchasing more when prices are low and this negative relationship is indicated by the...
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