An American social entrepreneur, David Green, recently stated the following: “Let’s face it. The market economy is based on a fundamental deception: I (a company) know how much it costs to make something, and I’m going to fool you, the consumer, into paying as much as possible. I find this assertion false and misguided. While some markets are more desirable than others, no one is being fooled into paying as much as possible. In the following essay I will evaluate each of the four market types (monopoly, oligopoly, perfectly competition, and monopolistic competition) and discuss why I believe Mr. Green’s statement is incorrect.
Markets are the heart and soul of a capitalist economy, and different degrees of competition lead to different market structures, with differing implications for the outcomes of the market place. Each of the above mentioned market structures describes a particular organization of a market in which certain key characteristics differ. The characteristics are: (a) number of firms in the market, (b) control over the price of the product, (c) type of product sold in the market, (d) barriers to new firms entering the market, and (e) existence of nonprice competition in the market.
A perfectly competitive market is an idealized version of market structure. Three conditions are necessary before a market is considered perfectly competitive. These are: homogenous products, existence of many sellers and buyers, and perfect factors of production. Society finds these markets desirable for two reasons. The first reason is that the price charged to individuals equals the marginal cost of production to each firm. In other words, one could say sellers charge buyers a reasonable or fair price. Second, in general output produced under a perfectly competitive market structure is larger than other markets organizations. Thus, perfect competition becomes desirable also for the amount of the product supplied to consumers as a...
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