Market Types and Competition Dynamics
Explore the concept of a market system, different types of markets, and the dynamics of perfect competition. Learn about short-run equilibrium, abnormal profits, losses in perfect competition, and the long-run equilibrium with entry and exit of firms.
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Presentation Transcript
MARKET Is a system where buyers and sellers meet and transaction takes place between them Not necessarily a geographical area
TYPES OF MARKET PERFECTLY COMPETETIVE IMPERFECTLY COMPETETIVE Monopoly Monopolistic competition Oligopoly Duopoly
PERFECT COMPETITION Is a market where There are large number of buyers and sellers Homogenous product Uniform price of product Sellers are price takers There is free entry and exit Full knowledge of market exists
SHORT RUN EQULIBRIUM OF FIRM AND INDUSTRY AR curve =MR curve Firms are price takers, if one firm raises the price consumers will move to other firm Creates a horizontal AR or Demand curve
SUPER(ABNORMAL) PROFIT Any profit above normal profit Shortrun phenomenon
LOSS IN PERFECT COMPETITION Demand falls results in price fall Experiencing loss since AR<AC Reflects entire market As firms lose money, some firms leave the market Results in shift in supply curve
LONGRUN EQULIBRIUM (ENTRY OF FIRMS) Seeing profits new firms enter Supply increases (Supply curve shifts to right) Price falls in the industry Demand curve of each firm shifts downwards Profits falls Some firms face losses at this price and they exit Normal profits exist in longrun
LONGRUN EQULIBRIUM (EXIT OF FIRMS) At some price some firms face losses They exit the industry Supply of industry decreases(supply curve shifts to the left) Price increases Demand curve of each firm shifts upwards Losses decreases until it reaches normal profit
