Forms of
Markets
Various Types of Markets
Buyer
Seller
Essentials
of Markets
in
Economics
Commodity
Transaction
Name the Market
based on Features
Large Numbers of
Sellers
Large Numbers of
Buyers
Homogeneous
Commodity
Free Entry and
Exit of Firms
Price
S
Revenue
Firm is a Price Taker
D
O
O
Quantity (millions)
(a) Industry
Quantity (thousands)
Price
S
Revenue
Firm is a Price Taker
Pe
D
O
O
Quantity (millions)
(a) Industry
Quantity (thousands)
(b) Firm
Price
S
Pe
Revenue
Firm is a Price Taker
Price Line
D = AR
= MR
AR
D
O
O
Quantity (millions)
(a) Industry
Quantity (thousands)
(b) Firm
Name The Type of Market ?
PERFECT COMPETITION
Perfect Competition
• Features
– Very large number of buyers and sellers
– Homogenous products
– Freedom of entry and exit to the industry
– Perfect knowledge of market
– Perfect mobility of factors of production
– Absence of transport costs
Name the Market
based on Features
One Seller
Large Numbers
of Buyers
Restriction on the
Entry of New
Firms
Cartel
Formation by
Small Firms
Super Normal
Profits
Price Discrimination
• When the same product is sold at different prices to
different buyers
Shape of AR & MR Curves
• Downward sloping curves
Units sold
Price
TR
AR
MR
1
5
5
5
5
2
4
8
4
3
3
3
9
3
1
4
2
8
2
-1
Revenue
• MR is less than AR
AR
0
MR
Output
Equilibrium Output
• Equilibrium price and output
– MC = MR
Supernormal
Profits
MC
AC
AR
AC
AR
MR
O
Qm
Q
Name The Type of Market ?
Monopoly
• Defining monopoly
– Single seller
– Large number of Buyers
– No close substitutes
– Barriers to entry
– Super Normal Profits
– Price Discrimination
Think of some examples of
Monopolies
T
H
I
N
K
Imagine You are a CEO of a global software company.
How will you decide your price policy?
Can price discrimination be made socially desirable?