Definition of Market: Market can be defined as any means of communication whereby sellers and buyers come to communicate with one another, to exchange goods and services based on the price determined by market forces.
Market, focuses it main aims on means of exchanges. Can be classified according to the degree of competition facing the economics agents that operate in the market, especially the producer or supplier of given commodity. By using the following steps one can identify various types of market either, market according to commodity sold in them or according to price.
Market according to commodity sold in them are fellow:-
i. Money Market: this is type of market for short term loan, it type of market the involve that bring both the borrower and lender together for a short term loan basis.
ii. Capital Market: it’s type of market for long term and medium term loan. It serves the need of industries and commercial sector.
iii. Consumer Market: this is type of market where finished goods ready for used by consumer are sold and bought.
iv. Factor Market: It is type of market in which the factor of production are sold and bought.
v. Foreign Exchange Market: This is market which concerned with foreign exchange transactions, it involve the buying and selling of foreign currencies.
vi. Labour Market: This is market where workers and employers are connected in close contract for the propose of rendering service.
Market Accounting to Prices
Market according to prices is based on the prices of commodities and it can be grouped into two: perfect and imperfect market.
1. Perfectly competitive market
Definition: A perfect market may be defined as one in which buyers or sellers cannot influence the prices of goods and services perfect market can also be refereed as competitor market
Feature of perfect Market
i. Homogenous Good: the goods bought and sold in perfect market must be the same interm of identification, size, shape, weight colour etc in the observation of customer.
ii. Free Entry and Exit: There is free entry and exist for the firm ant customers.
iii. Large buyer and Seller: This is large number of buyers and sellers, each of whom has no control over the prevailing prices.
iv. No preferential: In perfect market all buyers must be treated equally. Also no sellers must sell either below or above the prevailing prices.
v. Common Price: In perfect market the commodities concerned bear the same price tag through out the market.
Demand Curve for a Firm Under Perfectly Competition Market
It has been noted that a firm in a perfectly competitive market is fully aware of the price at which any unit of the commodity being exchanged. Therefore whatever quantity the household decide to buy the same uniform price per unit must be paid.
Since the demand curve shows the relationship between price and quantity demanded and the price remains constant for whatever quantity the demand curve facing a perfectly competitive firm is straight horizontal the price point at the price level fixed by the market forces of supply and demand.
Demand curve for a perfectly competitive firm
In the point MR= AR = P because every agent is a price taker. As long as a firm charge the known price (P) it is able to sell whatever quantity it can supply if however it increase its price even by a little bit, it will lose all it’s customer who we have been well informed about the market conditions. The firm as a profit maximizing unit cannot sell bellow the price because it is the minimum it must get in order to remain in the business transaction.
On the other hand buyer will stay away from a firm who charge any price higher than the (P*). Therefore from the combined decision and actions of these two agents, the demand cure must assume the shape of the curve (dd) in the curve straight and horizontal tot eh quality line 0q
Short – Run equilibrium for a perfectly competitive firm
A firm is said to be in equilibrium wherever it is maximizing it’s profit. This is the most profitable position and a profit maximizing firm will be organized it activities in such a way as to attain this condition.
There are two ways that a firm can attain such conditions
i. Total Approach
As a firm continues to vary it’s output, there must be a particular the to total cost and total revenue is the greatest. That is where the profit is maximum and so the profit maximizing firm must maintain that output level in order to ensure maximum profit.
ii. Marginal Approach
The maximum profit or equilibrium point can alternatively be determined when the firms marginal cost (LMC) equal it marginal revenue (MR). However, this first indicator can be said to be a necessary but not sufficient condition for profit maximization. Therefore, to have the two condition fulfilled this equality of the MC and MR. must also occur when the MC is already rising.
The second condition becomes necessary because a firm that operate at the intersection where the MC is still falling will lose all the profit that could have earned between this point and the rising portion of the MC. The can be analysis in the table bellow.
1. Observe that column 3 contain the various MR value while column 5 is for the associated MCs. At the level of output 8, the MR = MC = 20. it is also at this output level that profit is highest.
The graph of these marginal value are shown below.
Pure Monopoly Market
Pure Monopoly: This is type of market structure where there is only one seller of a given commodity. Therefore the is no rival (competitor) and in this case the firms out put and supply are same as those of the industry. The agent that is practicing this called monopolist. There, may very large number of buyer but it can only be a single seller.
For instance, we have (NRA) Nigeria railway authority, which is been control by the government only, which one mean of transportation. Consider a drug like nivaqine and other kinds of drugs.
A monopoly is regarded as price indicator or giver. This is because it fix price at which it will sell it product. It can also be quality giver by fixing the quantity of good and service it going to sell. It cannot fix to variable at the same time. But can only fixes only one combination with the market demand to determine the other variable.
Sources of Monopoly Power
The following are the power to monopoly:
1. Natural Endowment: This monopoly occur naturally deposited in a given place naturally for instance cocoa can only be found some part of south west and south east, crude oil nige delta area in Nigeria and not every place in the country.
Patent Right: this right grant by government to a firm, for the effect of item, where there will be no other agency will be given right to produce such product.
State monopoly: this occur when the state enact a law or decree on conferring itself only owner and dealer in a given particular commodity. For instance government for long and till date.
V Brute Force: this is situation where by the superior firm threat and act of intimidation to prevent any other firm from entering a particular business.
Revenue and Demand for a Monopolist
The demand curve for monopolist is downward sloping like the normal demand curve. This arise from the fact that there is an inverse relationship between the price and the quantity demanded of the monopolized commodity.
Therefore follows that an additional higher unit sold by the firm must attract a lower additional (marginal) revenue than the previous unit sold. Monopolist like other firm encounter three kind of revenues
i.e Total revenue
The relationship between the AR and MR is shown graphically below
Observe that price level has to fall from AR1 to AR2 for quality demanded to rise from 1 to q2.
Short-run equilibrium for A monopolist can attain its short run equilibrium through either the total approach or the marginal approach.
(1) Total approach
An monopolist is at short-run equilibrium at the output level where it profit is the highest. This is output that ensure that total revenue minus. Total cost has the highest difference profit is therefore been maximized.
Here equilibrium output of the monopolist can be located where the firm marginal cost (MC) is equal to it marginal revenue (MR) this equally can be locate at the rising portion of the MC in a table or graph.
ADVANTAGE of monopoly
There must be a certain reason which encourage monopoly to exist some of such reason are:-
i. Wast of competition minimized
Monopoly eliminate the individuals, this wast can be arise from attempts by rival to control the market for the product.
ii. Control Over the Market
It encourage people to apply their inventive or other natural talent to bring about useful innovation is society
Disadvantage of Monopoly
i. Artificial scarcity
ii. Exorbitant price
iii. Low quality goods
iv. Adverse influence on Government policies:
The monopolist applies all sort of pressure to forestall the social beneficial policies when its narrower interest are endangered eg tariff etc.
Price discrimination is one of the activities of monopolist. It involve in selling the same commodity to difference buyers at difference price.
Similarity between perfect Competition
1. There is free entry and exit in both markets
2. There is a large number buyers in both
3. There is excess or abnormal profit for both in the short run.
4. Profit is maximized in both market when MC equal MR.
Difference between perfect competition and pure monopoly Competition
There is presence of money seller and buyer
There is only one seller and many buyers
There is preferential
No preferential treatment
It do not determined the quantity to supply and to be bought
It determined the quantity to supply and bought
It is not price indication
It is price indicator
There is free entry and exit
Entry and exist are restricted
Principle of Economic J. C. Odike
Sir N. N. Odo
S. O. Udeh
B. I. Ikechukwu 2004
E. E. Ande 2008