Chapter 3, Problem 1QR

To determine

The meaning of competitive market and dependence on the presence of many buyers and sellers.

Explanation of Solution

A market is a place where the buyers and sellers meet each other and interact with each other, and the exchange of goods and services takes place between the buyer and the seller at a mutually agreed price level. The degree of competition in the market determines the nature of the market. The classifications of market are as follows:

A market where there is only a single seller or producer is known as the monopoly market. The complete market power and control will be with the single producer itself. The market where there are two of such producers is known as the duopoly market. There will be strict restrictions in the market, which prevents the entry of new firms into the market and vice versa. When there are few producers, such market is known as the oligopoly market. When there are many sellers and buyers present in the market, it is called the monopolistic competitive market and when the number of producers are very large and the product is homogeneous, such market is known as the perfectly competitive market.

Thus, a competitive market is a market structure where there are many small buyers and sellers present in the market and the goods will be somewhat similar to each other. This presence of large number of sellers for the similar product ensures that no seller has more degree of market power with them. This means that no seller can decide the market conditions and the presence of competition in the market being the price takers rather than being the price makers. When the number of buyers and sellers are low, it would result in the situation of a small number of sellers with large degree of market power. Thus, the presence of large number of buyers and sellers is an important concept of the competitive market.

Economics Concept Introduction

Market:  A market is a place where the buyers and sellers interact with each other, and the exchange of goods and services takes place between them at a mutually agreed price level.