Types Of Markets : RAS Economics
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Types Of Markets : RAS Economics

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Types Of Markets : RAS Economics

Types Of Markets : RAS Economics

Types Of Markets

There are 3 types of markets:

  • Perfectly Competitive Market
  • Monopoly
  • Imperfect Markets

Features of Perfectly Competitive Market:

  • Multiple buyers and sellers in the market
  • The goods offered by the various sellers are largely the same.
  • Firms can freely enter or exit the market.

Each buyer and seller takes the price as regulated by the market, hence ‘price taker’.

 Monopoly:

  • A monopoly such as Microsoft has no close competitors and therefore, can influence the market price of its product. Therefore a monopoly firm is a price maker.

Reasons for monopoly:

  • A key source is owned by a single firm.
  • The government gives a single firm the exclusive right to produce some good or service.
  • The costs of production make a single producer more efficient than a large number of producers.

Natural monopoly:

  • An industry is a natural monopoly when a single firm can supply a good or service to an entire market at a lower cost  than could two or more firms.
  • Ex., distribution of water

Imperfect markets:

Oligopoly:

  • Market with only a few sellers, each offering a product similar or identical to the others.
  • Ex., Oil, Pharmaceuticals

Monopolistic:

  • Market with many firms selling products that are similar but not identical.
  • Ex., Markets for novels, movies, CDs
  • They have to incur high advertising costs.
  • Each firm has a monopoly over the product it makes.

Engel's Law

  • According to Engel’s law, as income rises, the proportion of income spent on food falls, even if absolute expenditure on food rises.
  • Income elasticity of demand of food lies between 0 and 1.

You can also read Market forces of demand and supply or join RAS course