Market Structure Essay

1677 words - 7 pages

There is a range of different market structures that exist in an economic system. The main characteristics of each market vary depending on the industry and the companies related to that industry. Under a mixed economy, it is important for a business to understand what sort of market structure it operates in, as customers are able to choose among a wide range of products, directly affecting price, demand and supply levels. The main different types of market are known as perfect competition, monopolistic competition, oligopoly and monopoly.
PERFECT COMPETITION:
This is a very important market structure, where there are a large number of firms, all of them fairly small compared to the size of ...view middle of the document...

Some of theses factors may ruin the crops and decrease productivity, being out of the control of the farmer, for example, the weather and pests. Although farmers can control pests by using chemical treatments, it can alter the ratio of inputs and outputs. Besides, farmers are still likely to face drought, long-lasting rainy season or unexpected frosts.
The influence of these factors might be good or bad, depending on the farmer’s circumstances. For example, the capacity of a soil is important, and some productions can be forced through the use of fertilizers, enabling the production to go beyond capacity. However, the use of fertilizers, when not controlled accurately, can change the quality of the soil and the product. The availability of equipments is also a factor influenced by circumstances. If the farmer has easy access to technology as well as budget to invest in time, energy and money, it can improve the productivity. Likewise, those without easy access to technology are in disadvantage, as they handle their crops primarily by hand.
MONOPOLISTIC COMPETITION:
The monopolistic competition is a market structure with a reasonable number of producers and consumers, whereas producers offer a very much similar product, somehow differentiated – or perceived to differ, therefore with different prices. However, no firm has total control over prices in this kind of market structure and the barriers to entry or leave the industry are also low. Monopolistic competition is similar to perfect competition but some economist regard it as perhaps more realistic, because the products are differentiated (or ‘non-homogeneous’). (Tutor2U)
If you walk into a high street, you can see an extensive number of businesses fitted in a monopolistic competition structure. For example, the retail sector, whereas one store sells pretty much the same commodity as another store and retailers try to somehow differentiate their products through its nature (e.g. design, quality) in order to obtain some control over prices. So monopolistic competition leads to strong brand loyalty, whenever the company decides to raise its prices, it might lose some customers, whilst those who particularly like the brand would remain.
The levels of price, supply and demand in a monopolistic competition can be affected by a number of factors. One of the strongest is the fact that consumer preferences change in accordance with its culture, lifestyle and norms, affecting the retail market in different ways. Technological factors also influence on price, supply and demand levels in monopolistic competition. It includes the availability of resources, demand and production. Let’s imagine there’s a scarcity of rubber, which is used for shoe soles, therefore, forcing producers to look for an alternative material, such as wood.
Economic factors can affect the market both negatively and positively. It means that, during a recession period, people might not purchase goods and services as much as...

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