Forms of Market Class 11 Notes Economics

The market is the whole region where buyers and sellers of a commodity are in contact with each other to effect sales & purchases of a commodity. Here are the forms of market class 11 notes.

Perfect Competition

It refers to a market situation in which there is a very large number of buyers and sellers dealing in homogeneous products at a price fixed by the market.

The price is not determined by a particular firm but by the industry or market. In reality, perfect competition has never existed.

Features of Perfect Competition

1. A very large number of buyers and sellers: The implication of a very large number of buyers and sellers is that the number of sellers is so large that the share of each seller is insignificant to the total supplier.
   Hence an individual seller cannot influence the market price. Similarly, a single buyer also cannot influence the market price.
2. Homogenous Product: The products for sale in the market are homogenous i.e. identical in all respects like size, shape, quality, color, etc.
3. Freedom of Entry and Exit: Every seller has the freedom to enter or exit the industry. There are no artificial or natural barriers to the entry of new firms & exit of existing firms. It ensures the absence of abnormal profits & abnormal losses in the long run.
4. Absence of Transportation Cost: To ensure uniform price it is assumed that the transportation costs are zero.
5. Absence of Selling Cost: Selling cost refers to the cost of advertisement of a product. In perfect competition, there are no selling costs because of perfect knowledge among buyers and sellers.
6. Perfect Knowledge among Buyers and Sellers: Perfect knowledge means that both the buyers and sellers are fully informed about the market price.
   It implies that no firm is in a position to charge a different price and no buyer will pay a higher price.

Note: Under perfect competition, an individual firm cannot influence the price on its own as its share in the total market supply is negligible. Hence, the firm has to adopt the price set by the industry.

The firm has no other option but to sell at a price determined by the industry. The price is determined by market forces of demand & supply. Hence, the firm is a price taker & industry is the price maker.

Demand Curve Under Perfect Competition

In perfect competition, there are a very large number of buyers and sellers selling homogenous products at a price fixed by the market.

Therefore each firm is a price taker & faces a perfectly elastic demand curve.

Monopoly

It refers to a market situation where there is a single selling product that has no close substitute. Example: Railways.

Features of Monopoly

• Single Seller: Under Monopoly, there is a single seller, selling the product. As a result, the firm & the industry are one & the same thing.
• No Closed Substitute: The product produced by a monopolist has no closed substitute. As a result of which the monopolist have no fear of competition.
• Restrictions on Entry and Exit: There exist strong barriers to entry of new firms and exit of existing firms.
  As a result, a monopoly, firm can earn abnormal profits & losses in the long run.
• Price Determination: A monopolist may charge different prices for his product from different set of customers at the same time. It is known as Price Determination.
• Price Maker: Under Monopoly, the firm & industry are the same thing. So, the firm has complete control over the industrial output.

Demand Class 11 Notes Microeconomics

Monopolistic Competition

It refers to a market situation in which there are a large number of firms selling closely related but differentiated products.
For Example: Soap, Toothpaste, Shampoo, etc.

Features of Monopolistic Competition

1. Large Number of Sellers: There are a large number of firms selling closely related but not homogenous products. Each firm acts independently & has a limited share of the market.
2. Product Differentiation: Each firm is in a position to exercise some degree of monopoly through product differentiation.
   Product differentiation refers to differentiating the products based on brands, size, color, shape, etc. The product of a firm is closed but not a perfect substitute for other firms.
3. Freedom of Entry and Exit: Firms under monopolistic competition are free to enter and exit from the market.
4. Selling Cost: Under Monopolistic competition, products are differentiated & these differences are made known to the buyers through selling cost.
   Selling cost refers to the expenses incurred on marketing, sales promotion, or advertisements of the product.
5. Lack of Perfect Knowledge: Buyers and sellers do not have perfect knowledge about the market conditions. Selling costs create artificial superiority in the minds of the consumer.
6. Pricing Decision: A firm under monopolistic competition is neither a price taker nor a price maker. However, by producing a unique product each firm has partial control over the price.

Olygo Poly

The term Oligo Poly is derived from the two Greek words OLIGI meaning few and POLEIN which means to sell.
Oligopoly refers to a market situation in which few firms are selling homogenous or differentiated products. It is also known as ‘Competition among the few’.
For Example: Automobiles, Cement, etc.

There are four types of OligoPoly:

• Pure Oligopoly: If the firm produces homogenous products then it is called pure or perfect oligopoly. For example: Cement.
• Imperfect Oligopoly: If the firm produces differentiated products then it is called differentiated oligopoly. For example cold drinks, cigarettes, etc.
• Collusive Oligopoly: If the firms cooperate in determining price or output or both it is called a Collusive oligopoly. For example: Cold drinks.
• Non-Collusive Oligopoly: If the firms in an oligopoly market compete with each other it is called a noncollusive oligopoly. For example: Cars, etc.

Features of Oligopoly

• Few Firms: Under an oligopoly, there are few firms & each firm produces a significant portion of the total output. There exists severe competition among different firms & each firm tries to outsmart the other firm.
• Interdependence: Firms under oligopoly are interdependent. The actions of one firm affect the actions of other firms. A change in output or price by one firm evokes a reaction from other firms operating in the market.
• Non-Price-Competition: Under an oligopoly firms are in a position to influence the price. But they try to avoid price competition. They follow the policy of price rigidity.
  Price rigidity refers to a situation in which price tends to stay fixed irrespective of changes in demand & supply conditions.
• Barriers to entry of firms: The main reason for few firms under oligopoly is the barriers that prevent entry of new firms into the industry. Barriers may be patents, requirements of large capital, etc.
• Selling Cost: Due to severe competition and interdependence of firms various sales promotion techniques are used to promote the sale of the product.
• Undetermined Demand Curve: Under an oligopoly, the exact behavior of a producer cannot be determined with certainty. Therefore, the demand curve faced by an oligopolist is indeterminant.