07-07-2012, 11:35 AM
An Orientation to Markets
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MARKETS AND ITS FORMS
Economists have classified industries into four distinct market structures on the basis of following aspects;
The number of Firms in the Industry
The Entry of firms into Industry
Produce Standardized products or Differentiate their products
Control over Price
Market Structure
Models – a word of warning!
Market structure deals with a number of economic ‘models’
These models are a representation of reality to help us to understand what may be happening in real life
There are extremes to the model that are unlikely to occur in reality(perfect competition & pure monopoly)
They still have value as they enable us to draw comparisons and contrasts with what is observed in reality
Models help therefore in analysing and evaluating – they offer a benchmark
Characteristics of each model:
Number and size of firms that make up the industry
Control over price or output
Freedom of entry and exit from the industry
Nature of the product – degree of homogeneity (similarity) of the products in the industry (extent to which products can be regarded as substitutes for each other)
Diagrammatic representation – the shape of the demand curve, revenue curve etc.