MARKET STRUCTURE
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
Average revenue
Marginal 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.
Marginal
Approach
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
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
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1.
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There is presence of money seller and buyer
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There is only one seller and many buyers
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2.
|
There is preferential
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No preferential treatment
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3.
|
It do not determined the quantity to supply and to
be bought
|
It determined the quantity to supply and bought
|
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4.
|
It is not price indication
|
It is price indicator
|
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5.
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There is free entry and exit
|
Entry and exist are restricted
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REFERENCES
Principle of Economic J. C. Odike
Sir N. N. Odo
S. O. Udeh
B. I. Ikechukwu 2004
Essential Economics
E. E. Ande 2008