When people think about market, they either think of a supermarket where everything is stocked with a wide range of products from foods to cleaning supplies, or a neighborhood farmer’s market where retailers set up booths, tables or stands and sell fruits, vegetables, meat and sometimes prepared foods and beverages. Either way, when people talk about market, they think of a physical location. In economics terms, a market does not need to have a physical location. A market essentially means where there are buyers and sellers for a particular product, there is a market. Economists believe there are four different types of markets structures – pure competition, monopolistic competition, oligopoly and pure monopoly. According to Colander (2010), a perfectly competitive market or pure competition must have the following conditions: 1. Both buyers and sellers are price takers
2. The number of firms are very large
3. There are no barriers to entry
4. Firms’ products are identical
5. There is complete information
6. Selling firms are profit-maximizing entrepreneurial firms In a perfectly competitive market structure, the companies choose the quantity to produce but will take the price from the consumers. The demand curve is perfectly elastic. Companies can maximize their short term profits, but as other businesses inter into the market, the supply curve will shift and price will fall. Unlike the perfectly competitive market, a pure monopoly market structure has one firm that makes up the entire market. The monopoly market structure exists when there are barriers preventing other firms to enter into the market. These barriers can be legal barriers as in the case of a firm owning a patent. Customs or tradition preventing businesses to enter into the market is another form of barriers that can exist in a monopoly market. A pure monopoly market structure can occur when one business has a unique way to produce and no other...
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