Quiz 8: Public Goods, Common Resources and Merit Goods

Business

Market structure: Market refers to a place or medium where buyers and sellers trade their goods. Market structure refers to the characteristic features of the market that is determined by the behavior of the market. • Perfect competition refers to the market structure with the features of more number of sellers and buyers in the market. Firms sell homogenous products. Price is fixed by the market demand and supply. Individual firm cannot change the price. Firms can easily enter or exit from the market. Firms and consumers are well informed about the market. Firms are competing with each other. • Monopoly refers to the market structure with the features of a single seller and more buyers. Firms have full control over the market. Price is fixed by the monopoly producer. There is a restriction for entry of a firm. • Oligopoly refers to the market structure with the features of a few sellers and more buyers. Firms are producing homogenous goods. Firms are competing with themselves. There is no easy entry into the market due to the huge investment. Information about the market is not available.• Monopolistic competition refers to the market structure with the features of more buyers and more sellers. Each firm sells the homogenous product with a different brand name. Firms can easily enter or exit from the market. Following are the factors to determine the market structure: • Number of buyers and sellers. • Degree of uniformity. • Easy entry into and exit from the market. • Competition among the firms.

Perfect competition: Perfect competition refers to the market structure with the features of more number of sellers and buyers in the market. Firms sell homogenous products. Price is fixed by the market demand and supply. Individual firm cannot change the price. Firms can easily enter or exit from the market. Firms and consumers are well informed about the market. Firms are competing with each other. Demand refers to the desire and ability of the consumer to buy goods and services at the prevailing price.Demand Curve: Demand curve refers to the graph that illustrates the amount of goods and services demanded at various levels of price. Since , demand curve is negatively related to price, it falls from left to right. Shape of demand curve in the perfect competition: In the perfect competition, prices of goods and services are determined by the market demand and supply. Therefore, firms are price takers. Firms are selling their product as much as they can sell in the market at the prevailing price. If a particular firm increases the price slightly, then consumers do not buy the product from that particular seller. Hence, the demand curve is horizon tal.

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