Unit 41 Business - P5
Explain the Different Types of Market Structures
There is a spectrum of markets structures that exist. At one extreme you have the monopoly structure, where the market is dominated by one company with little competition. At the other end of the spectrum you have perfect competition, where the market is made up of about 100 small companies who would own about 1% of the market each. Towards the middle of the spectrum you have the oligopoly structure where the market is of about 4-10 companies who each control a big chunk each.
Perfect competition describes how a set of companies aren’t big enough to control a big chunk of the economic market. There are 4 market characteristics of a perfect competition include a large number of small firms, identical products made sold by all firms, easy to enter and exit the industry market and perfect knowledge of prices and technology. The price in a perfect market is always dictated by the consumers, the output or quality is determined by the producers. There isn’t much room to change prices to beat off competitors as your margins become very small, and if you do not sell much you probably won’t break even. The quality may be a little different, but wouldn’t be significant enough to let the company grow.
1 example of a perfect market is the currency market. Currency trading is active 24 hours a day, 5 days a week. The main companies involved in trading are banks, hedge banks, corporations and private traders. There is always a homogenous output as no matter what, a yen is a yen and dollar is a dollar. To determine the prices of the currency, large numbers of buyers and sellers will meet openly to determine prices, each of the major banks has a foreign exchange trading floor where they can make the prices. Buying and selling has become easy, especially looking for the best prices as you can look on the internet to compare.
Another example of a perfect market is a farmers market. The farmers market has lots of small firms
There is a spectrum of markets structures that exist. At one extreme you have the monopoly structure, where the market is dominated by one company with little competition. At the other end of the spectrum you have perfect competition, where the market is made up of about 100 small companies who would own about 1% of the market each. Towards the middle of the spectrum you have the oligopoly structure where the market is of about 4-10 companies who each control a big chunk each.
Perfect competition describes how a set of companies aren’t big enough to control a big chunk of the economic market. There are 4 market characteristics of a perfect competition include a large number of small firms, identical products made sold by all firms, easy to enter and exit the industry market and perfect knowledge of prices and technology. The price in a perfect market is always dictated by the consumers, the output or quality is determined by the producers. There isn’t much room to change prices to beat off competitors as your margins become very small, and if you do not sell much you probably won’t break even. The quality may be a little different, but wouldn’t be significant enough to let the company grow.
1 example of a perfect market is the currency market. Currency trading is active 24 hours a day, 5 days a week. The main companies involved in trading are banks, hedge banks, corporations and private traders. There is always a homogenous output as no matter what, a yen is a yen and dollar is a dollar. To determine the prices of the currency, large numbers of buyers and sellers will meet openly to determine prices, each of the major banks has a foreign exchange trading floor where they can make the prices. Buying and selling has become easy, especially looking for the best prices as you can look on the internet to compare.
Another example of a perfect market is a farmers market. The farmers market has lots of small firms