Definitions [11]
Define the term market.
The term ‘market’ refers to the whole region in which buyers and sellers are in close contact to effect the purchase and sale of a product.
In economics, the term market refers to the mechanism or arrangement by which buyers and sellers of a commodity are able to interact with each other for having economic exchange and are able to strike a deal about the price and the quantity to be bought and sold.
“A market is the set of all actual and potential buyers of a product.”, Phillip Kotler
“Market includes both place and region in which buyers and sellers are in free competition with one another.”, Pyle
“A market means a body of persons who are in intimate business relations and carry on extensive transactions in any commodity.”, Jevons
“A market is a centre in which forces leading to exchanges of title to a particular product operate and towards which and from which the actual goods tend to travel.”, Clark and Clark
Define the term oligopoly market.
An oligopoly is a market structure in which a small number of large firms dominate the industry. These firms sell similar or differentiated products, and each firm’s decisions (such as pricing or output) directly affect the others, making them interdependent.
According to Augustin Cournot, “Economists understand the term 'market', not any particular marketplace in which things are bought and sold, but the whole of any region in which buyers and sellers are in such close contact with one another that the prices of the same goods tend to equality easily and quickly.”
Define monopolistic competition.
Monopolistic competition is a market structure in which the number of firms is large, there is free entry and exit of firms, and the firms produce differentiated products.
Define product differentiation.
Product differentiation refers to differentiating the products on the basis of brand, size, color, shape, etc.
According to Chamberlin, “A General class of product is differentiated if any sufficient basis exists for distinguishing the goods of one dealer from those of another. Such a basis may be real so long as it is of importance whatsoever to buyers and leads to a preference for any variety of the product over another”.
Define Discriminating Monopoly.
When a firm is able to sell the same product or service to two different categories of consumers at different prices, then it is known as price discrimination. Generally, a Monopoly firm is able to practice price discrimination successfully.
The act of selling the same product at different prices to different buyers is known as price discrimination.
Define perfect competition.
Perfect competition is a form of market in which there are a large number of buyers and sellers and a homogeneous product is sold at a uniform price.
Define oligopoly.
An oligopoly is a market structure in which there are only a few big sellers.
Define monopoly.
A monopoly is a market situation in which a single firm sells a commodity, and there is no close substitute for the commodity the monopolist sells.
Define monopsony.
Monopsony refers to a situation in which there is a single buyer of a commodity and in which the entry into the market by other buyers is impossible.
"When there are exactly two sellers in the market this is a special case of oligopoly called duopoly." – Cohen and Cyret.
Key Points
- In common language, a market is a place where buying and selling occur.
- In economics, a market is any arrangement that allows buyers and sellers to meet (physically or virtually), decide a price, and exchange a commodity or service.
- A market can be local, national, or international.
- Essential elements of a market: commodity, buyers and sellers, area of operation, communication/contact, and price.
- There are two main ways to define a market: geographical (place‑based) and functional (activity‑based).
- Competition among buyers and sellers tends to produce one prevailing price for the same commodity at the same time within a market.
| Market Structure | Key Points | Examples |
|---|---|---|
| Perfect Competition | • Very large buyers & sellers• Homogeneous product• Firm is price taker• Free entry & exit | Wheat/rice market, share market |
| Monopoly | • Single seller• No close substitutes• Firm is price maker• Strong price control | Indian Railways, water supply |
| Monopolistic Competition | • Large number of firms• Differentiated products• Limited price control• Heavy advertisement | Toothpaste, soaps, restaurants |
| Oligopoly | • Few dominant firms• Product homogeneous or differentiated• Interdependence of firms | Telecom, automobile, airlines |
| Duopoly | • Only two firms• Special case of oligopoly• Mutual dependence | Major cola brands |
| Monopsony | • Single buyer, many sellers• Buyer controls price• Factor market | One factory in a town |
- A duopoly is a market with exactly two dominant firms and is a special type of oligopoly.
- The key feature of duopoly is strong interdependence: each firm’s decisions affect the other, and each anticipates the rival’s reaction.
- Products may be homogeneous or differentiated, but only two firms control most of the market.
- Each firm faces uncertainty and cannot rely on a single, stable demand curve because demand depends on the rival’s behaviour.
- Strategic moves and counter‑moves (like price changes and advertising) are common in duopolistic markets.
Important Questions [5]
- Explain any four features of perfect competition.
- Determination of Equilibrium Price Under Perfect Competition.
- Distinguish Between Gross Domestic Product at a Market Price and Gross Domestic Product at Factor Cost.
- Write Explanatory Answer.Define Perfect Competition and Explain Price Determination Under Perfect Competition.
- Define Or Explain the General Equilibrium.
