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Chapter 8

The document discusses market structures in economics, categorizing them into perfectly competitive and imperfectly competitive markets. It explains the characteristics of perfect competition, including the existence of many buyers and sellers, homogeneous products, and price determination through supply and demand. Additionally, it outlines the concepts of equilibrium price and the effects of time on supply, detailing short-run and long-run scenarios for firms operating under perfect competition.

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krishna29062003
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3 views

Chapter 8

The document discusses market structures in economics, categorizing them into perfectly competitive and imperfectly competitive markets. It explains the characteristics of perfect competition, including the existence of many buyers and sellers, homogeneous products, and price determination through supply and demand. Additionally, it outlines the concepts of equilibrium price and the effects of time on supply, detailing short-run and long-run scenarios for firms operating under perfect competition.

Uploaded by

krishna29062003
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Chapter-8

MARKET STRUCTURE

Presented By-
Krishna Behera
Priyanshu Raj Singh
Jashan Singh
Sidharth Behera
Rashi Jalan
Abhigyan Sahu
MARKET :
 The term Market means a physical places where the goods
and services are bought and sold. But in economics it
represents a physical places where potential-buyers and
potential-sellers meet together with exchange of goods and
services .

 It is a physical place where potential buyer meet with


potential seller and medium of exchange exist in between
them.

 Here potential buyer represents, buyers having financial


ability with required potential knowledge about product, and
firm.
Economics define two broad categories of
market structures:

(1) Perfectly Competitive Market :-


 This market deals with homogenous / Identical
products & under this one market model i.e. Perfect
(2) Imperfectly Competitive Market :-
Competition.
 This market deals with Non-homogenous products / heterogeneous
product & under this one market model .i.e. Monopoly,
Monopolistic, Oligopoly, Duopoly.

PERFECT COMPETITION :
 It is such a market structure where there are large number of buyers
and sellers of a homogeneous product and the price of the product is
determined by the industry. There is one price that prevails in the
market. All firms sell the product at the prevailing price.
Features :

Perfect competitive firm can also be understood with


its unique features and characteristics ;

1)Existence of a large number of buyers and sellers


2)Absence of government controls
3)Homogenous products
4)Normal profits
5)Free entry and exit of firms
6)Existence of single price
7) Perfect knowledge of the market
8) Perfect mobility of factors of production
9) The market price is flexible over a period of time
10)Full and unrestricted competition
11)It is an ideal market situation
12)It is a rare phenomenon which does not exist in
reality
Equilibrium Price :
The demand curve normally slopes downwards
showing that more quantity of commodity will be
demanded at a lower price than at a higher prices.
Similarly supply curve showing an upward trend
where the producers will offer to sell a larger
quantity at a higher price than at a lower price.

 Thus the quantity demanded and quantity supplied


vary with price.
Effect of Time on Supply :
 According to Marshall, time has great influence on
the determination of price. The following are the
market periods based on time- very short period, short
period and long period.

1)Very Short Period (Market Period)


2)Short Period
1. Very Short Period (Market period)

 It may be only a day or very few days. Change in supply is not


possible where the period is very short and quantity demanded will be
the determining factor.

2. Short Period

 The short period is a period not sufficient to make any changes in


the existing fixed plant capacity. Increase in supply in the short
period is possible by increasing the variable factors of production
only.
3. Long Period

 The supply curve slopes upward to right showing that some increase
in supply is possible when the price increases.

 Long period is a time long enough to adjust the supply to any changes
in demand.
Price Determination under Perfect
Competition :
 In perfect competition the market price of a
commodity is determined by its demand and
supply. The price of a commodity determines at
the point where quantity demanded equates
quantity supplied. It can be explained through the
following diagram.
 MC = MR
MR = AR (Avg. Revenue)
Price = AR = AC (Avg. Cost)
Therefore, Price = MR = MC =
AR = AC.

 The equations can be satisfied


with the following diagrams
(1) Perfect Competition in very
Short Period (Market Period):
 In very short period, supply is inelastic, thus the
price depends on changes in demand. The supply
curve will be vertical straight line parallel to y-axis.

The seller does not sell the goods if the price is low.

But the price is high he will sell whole stock.

The curve will be curved at beginning; then it will become a


straight line.

Under very short period, the demand alone determines the


(2) During Short Period :
 In this period, the firm can make slight changes in their
supply of goods without changing the capacity of plant.
 In the short run, the perfectly competitive firm will seek
the quantity of output where profits are highest or—if
profits are not possible—where losses are lowest.
(3) In the Long Run :
 The In the long run, the firms in the industry are eager
to get super normal profits.
 However, this attracts new firms to the industry which
increases the supply and the price falls until no firm can
earn super-normal profits.
 The price determination is explained through the
diagram given below;
EQUILIBRIUM OF FIRM UNDER
PERFECT COMPETITION :
 The term equilibrium means point of balance
or it is a condition or state in which economic
forces are balanced. Economic equilibrium may
also be defined as the point at which supply
equals demand for a product.
 Perfect competitive firm is in equilibrium at that
point where supply equals demand for a product,
due to this perfect competitive firm is known as
price taker.
MR=MC,
& slope of MC > slope
of MR.
 Let’s prove the above condition
diagrammatically to reach at equilibrium
position.
 Equilibrium of perfect competitive firm can be
classified into two segment like ;

(1) Short Run Equilibrium (2)


Long Run Equilibrium

Short Run Equilibrium :


 In short run competitive firm earns Super-normal
profit, Normal profit and losses.

 And these three situation can be described in below


diagrammatical analysis
SUPER-NORMAL LOSS :
PROFIT :

P
P1

NORMAL PROFIT (No Profit and No Loss Situation) :


(2) Long Run Equilibrium :

 Long run equilibrium of perfect competitive firm refers to a period of time


long enough to allow the firms to make changes in all factors of
production. Hence, here new firm enjoy the industry because of getting
chance of opportunity.

To conclude it can be said that, in short run firm earns


duper-normal profit, normal profit then in losses.

But in long run firm unable to get good profit


because economic profit shared among the firm,
hence only gets normal profit.
THANK
YOU!!!

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