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Oligopsony

Oligosony is a Market Form in which the number of buyers is small while number of sellers in theory could be large. This typically happens in a market where numerous suppliers are competing to sell their product to a small number of (often large & powerful) buyers. This allows buyers to exert a great deal of control over the sellers and can effectively drive down prices. An Oligopsony is a form of imperfect competition. It contrasts with Oligopoly, where there are many buyers but few sellers. However, Oligopsony tends to be just as prevalent in the real world. In fact, the firms operating as Oligopoly in an output market, also often operate as Oligopsony in an input market. Most of the standard analysis that applies to the Oligopoly also applies to the Oligopsony. When a small number of relatively large buyers dominate an industry , they tend to dominate most facets of the industry. The reason that the term Oligopsony is seldom used is that term Oligopoly usually covers the entir…

Monopoly

A Monopoly is a situation in which a single company or group owns all or nearly all of the market for a given type of product or service, or is the sole provider of a good or service in an industry. This potentially allows that company to become powerful enough to prevent competitors from entering the marketplace, leading to Limited Consumer Choice, Higher Prices and Limited Response to Customer Concerns. Many times when a Government determines that an unfair monopoly is in place, it can step in enforce Anti-Trust laws, which can penalise companies monetarily or even force the break up of the company. Monopolies can form for a variety of reasons, as following If a firm has exclusive ownership of a scarce resource. Governments may grant a firm monopoly status for some period of time. The reasoning behind such Monopolies is to give innovators some time to recoup, what are often large Research & Development costs. Producers may have patents over designs, or copyright over ideas, char…

Oligopoly

An Oligopoly is a market structure in which few large firms dominate the market. When a market is shared between a few firms, it is said to be highly concentrated. Although only a few large firms dominate, it is possible that many smaller firms also operate in the market. Oligopolists may have considerable power to fix prices and output. Oligopolies can result from various forms of collusion between the market participants, which reduce competition and lead to higher prices for consumers. Power is concentrated only in the hands of a few firms, who can dominate the market to gain excessive super normal profits. Oligopolies may be identified using the Concentration Ratios, which measure the proportion of total market share controlled by a given number of firms. When there is high concentration ratio in an industry, economists tend to identify the industry as an Oligopoly. With few sellers, each Oligopolist is likely to be aware of the actions of the others. And the decisions taken by o…

Monopolistic Competition

The model of Monopolistic Competition describes a market structure where a large number of independent firms sell many similar products with slightly different characteristics. Products are differentiated from each other by the means of design, distribution, quality, colour, packaging, customer service or branding etc. and hence they are not perfect substitutes of each other. In Monopolistic Competition, a firm takes the price charged by its rivals as given and ignores the impact of it's own price on the prices of the other firms. Mainly small businesses operate under the Monopolistic Competition, including independently owned and operated high street stores, restaurants, retailers etc. Each one offers similar products but possesses an element of uniqueness, and are essentially competing for the same customers. Key Characteristics of a Monopolistic Competitive Market
Large Number of Participants There are many producers / sellers and consumers in the market, and no business has to…

Perfect Competition

A perfectly competitive market is a hypothetical market where competition is at it's greatest possible level. Economists argue that perfect competition would produce the best possible outcomes for consumers and society. Key Characteristics of a Perfectly Competitive Market
Perfect Knowledge About the Product There is perfect knowledge, with no information failure or time lags in the flow of information. Knowledge about all products is freely available to all market participants, which means the risk taking is minimal and the role of any single firm is limited. Given that the producers and consumers have perfect knowledge, it is assumed that they make rational decisions to maximise their self interest. Consumers look to maximise their utility, and producers look to maximise their profits. No Barriers to Entry & Exit There are no barriers to entry or exit into the market. Homogeneous Products Firms produce homogeneous or identical units of output that are not branded. Each unit …

Market Structure

The interconnected characteristics of a market, such as the number and relative strength of the buyers and sellers, degree of collusion among them, level and forms of competition, extent of product differentiation and ease of entry and exit in the market describes the Market Structure. The structure of the market refers to the number of firms in the market, their market shares, and other features which affect the level of competition. Market Structures are distinguished mainly by the level of competition that exists between the firms operating in the market. Hence Market Structures are classified in terms of presence or absence of competition. When competition is absent the market is said to be concentrated. In Economics, Markets are classified according to the structure of the industry serving the market. Industry structure is categorised on the basis of Market Structure Variables which is believed to determine the extent and characteristics of competition Those variables which have…

Classification of Markets

In Economics, market is defined as a set of buyers and sellers who are geographically separated from each other, but are still able to communicate to finalise the transaction of a product.The market for a product can be local, regional, national or international. A market can have a number of interconnected characteristics, including level of competition, number of sellers and buyers, types of products, and barriers to entry and exit. This interlinked characteristics are combined to form a market structure. Markets can be classified on many different ways like, area, time, transactions, regulations, volume of business, nature of goods, nature of competition, demand and supply conditions. Classification on the basis of Area Using area, we can categorise markets into local markets, regional markets, national markets or international markets. Local Markets Local markets confine to locality mostly dealing in perishable and semi perishable goods like fish, flowers, vegetables, eggs, milk an…

Market

A market in any one of a variety of different systems, institutions, procedures, social relations or infrastructures whereby persons trade, and goods and services are exchanged, forming part of the economy. It is an arrangement that allows buyers and sellers to exchange things. Markets vary in size, range, geographical scale, locations, types and varieties of human communities, as well as in the types of goods and services traded. Some Examples include, local farmer's market held in town squares, Shopping Centres or shopping malls, Financial Markets such as International currencies or commodity markets or Equity stock markets, legally centred markets such as pollution permits, and illegal markets such as black markets for illicit drugs or weapons. In mainstream economics, the concept of market is any structure that allows buyers and sellers to exchange any type of goods, services and information. The exchange of goods or services for money is called a transaction. Thus a market ha…

Forms of Business Organisation

A business can be organised in several ways, and the form it's owners chose will affect the company's and owner's legal liability and income tax treatment. Here are the most common options and their major defining characteristics. Sole Proprietorship This is generally the simplest way to set up a business. Sole Proprietorship is a businesses owned by a single person, the sole proprietor. In a sole proprietorship all profits, losses, assets, and liabilities are direct and sole responsibility of the owner. A sole proprietor is fully responsible for all debts and obligations related to his or her business. A creditor with a claim against the business, would normally have the right against all of the owner's assets, whether business or personal. This is known as Unlimited Liability. Sole proprietorship are not ideal for high risk businesses because they put all your personal assets at risk. If one is taking a significant amount of debt to start a business, if he has gotten…

Firm

A firm is a business organisation, such as a corporation, partnership or sole proprietorship, that sells goods or services to customers to earn profit, that will increase the wealth of it's owners and grow the business. The owners and operators of a firm have as one of their main objectives the receipt or generation of a financial return in exchange for their services. While most firms have just one location, a single firm can consist of one or more establishments, as long as they fall under the same ownership.

Factors of Production

The factors of production are resource inputs used to produce goods and services. It is an economic term describing the general inputs that are used in the production of goods or services in order to make economic profit. Every business utilizes various combinations of factors of production to produce final goods or services. Under the classical view of economics, there are four basic factors of production, which includes Land, Labour, Capital, and Entrepreneurship. Land is the physical space on which the production takes place, as well as natural resources or the raw materials that come from the land, like Crude Oil, Water, Air, Minerals, Ores, Coal, Timber etc.  Labour is the time human beings spend producing those goods and services, as well as the skills and abilities they use to produce the goods and services. Both the quantity and the quality of human resources and all things done either physically or intellectually to keep a business running by the human beings is included in …