And Price Out
represents by four basic market models.
Theoretical frameworks for existing firms and
industries in the real world.
play a vital role in our economy. They always seek
ways of reducing costs of production and of
improving the quality of their goods and services,
especially in a competitive market.
In the view of the scarcity of resources, they should
strive to maximize their employment and
production. It is their responsibility to pursue
economic efficiency as their objective.
the relationship between input (factors of
production) and output (goods and services
produced by the factors of production).
Basic Market Models
perfect or pure competition
Market Models Defined
is a market situation where
there is a large number of
independent sellers offering
refers to a market situation
where there is only one seller
or producer supplying unique
goods and services.
pertains to a market situation where
there are a relatively large number of
small producers or suppliers selling
similar but not identical products.
is associated with a market situation
where there are few firms offering
standardized or differentiated goods
There is a large number of independent
Products are identical or homogeneous.
No single seller and no single buyer can
influence the change in the market price of
It is easy for new firms or sellers to enter
the market and for existing firms or sellers
to leave the market.
There is no non-price competition like
advertising, sales promotion, or packaging.
is only one producer or seller.
Products are unique in the sense that
there are no good or close substitutes
The monopolist makes the price.
It is extremely difficult for new firms to
enter the market.
There may be or no extensive
advertising or sale promotion depending
on the goods or services of the
are a large number of
sellers acting independently.
Products are differentiated.
There is a limited control of price.
Entry of new firms in the market
is relatively easy.
There is an aggressive non-price
competition in the product
quality, credit terms, services,
locations, and physical
are very few firms which
dominate the market.
Products are identical or
There is a price agreement
among the producers to promote
their own economic interests.
The entry of a new competitor in
the market is difficult.
There is a strong advertising
laws and policies
policies and practices
The demand curve of an individual
firm under a purely competitive
industry is perfectly elastic. This is
because the decrease or increase of
the output of a single seller has no
effect on the total supply and
o In the case of market demand curve
(demand curve of all producers of a
particular product), it is elastic.
producers acting at the
same time can affect total
supply, and therefore also
o They can sell more units of
their output at a lower price.
This is the law of demand.
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