Good Essay About Economy

Market analysis is mandatory for every organization that decides to introduce its product into the economy. A thorough analysis helps to examine the various aspects of the economy, such as domestic and international demand and supply, barriers in the business and production costs. The apogee of the investigation describes the structure of the market in which the product resides. The paper explains the features of four market structures, namely, perfect competition, monopolistic competition, monopoly and oligopoly, while providing demonstrative examples of each structure. Furthermore, the paper identifies several other economic features, a few of which are; the change in price for elastic and inelastic goods, intervention of the government, trade markets and the effect of international trade on the economic markets. One of the main aspects that an investor should consider is the accommodation of a product and its respective firm into a market structure. It is important to the investors because, it affects the features, such as, the needs of the firm, chances and business strategies. It is advisable for every firm to predict the implicit and explicit production costs and the projected outcome of the market depending upon the market attributes.
According to the principles of microeconomics, perfect competition is a market structure where there are many buyers and sellers. In such a market, the firms produce products of similar kind and a theoretical economic model is necessary as the real data does not exist. The perfect competition market structure model is based on several assumptions. The model assumes that there are several sellers and buyers in the market who do not have any influence on the market. The second assumption is that the products are homogenous, with no differences. The third assumption is that the sellers and buyers have splendid information about their competitors and the products. The fourth assumption is that the firms invest a minimal amount to distribute the resources in and out of the market. The fifth assumption is that the firms are able to respond rapidly in situations of demand from the consumers. The last assumption is that the resources and labor can navigate through the industry easily.
There is no single organization that is able to fulfill all the assumptions; however, agricultural model best suits the perfect competition market structure. The production of one field of maize yielded by a farmer does not impact the thousands of fields harvested every year. The farmer has no other choice but to sell the maize at the market price. A perfect competition market structure has the only option to accept the market price or to deny the sale. Since all the products in a perfect competition market are of similar kind, there is no difference between the maize produced in Nevada or Iowa. Also, all the farmers are well aware of the cultivating method and the costs involved in the process of cultivation. If the market price for maize is $10 and a farmer wishes to sell it at a higher price, the buyers would not show interest as there are several other competitors who wish to sell at a lesser price. The example represents that the market price cannot be influenced by the producers. In the short run, the producers have to sell the products at the market price, which makes the demand curve perfectly elastic. In the long run, the producers would not be willing to sell the products at a negative economic profit. Since the paper has explained about the perfect competition market structure, the next section would describe the characteristics of a monopoly market structure.
A monopoly market structure has one sole producer who is capable of producing one hundred percent of the products in the market. This model has the least competition of all market structures. The buyer has the only option of whether or not to purchase from the firm. Similar to a perfect competition model, a monopoly model also defines a few assumptions. The first assumption is that there is only one seller in a monopoly market. The next assumption is that the products produced by the firms are unique and have no substitutes or comparison with alternate products. The firms in a monopoly market have no option to move through the market with minimal expenses. The firms have to cross several barriers such as licenses, patents, cost and control of raw-materials, production costs and many others. Since there is no competition for a monopoly firm, the demand curve is always inelastic in nature. The products are independent of the laws of demand and the firm in a monopoly market has the potential to increase the price of the product. The firms in a monopoly market structure always have the maximum price which the market can pay, and the marginal revenue equals marginal costs.
One of the best examples of a monopoly market structure is Microsoft. The company has a market share of ninety-three percent. Though Microsoft is not a pure monopoly company, it still has the benefits of applying barriers to the competition. The company delivers the Windows operating system with an integrated browser. The company has set a maximum price for its operating system; however, the higher pricing has reduced the revenue per unit sold due to the fall in the demand of units sold. The company has managed to balance between the demand and the price, which is an advantage for the customers. Since the paper has demonstrated the monopoly market structure, the next section would explain the characteristics of a monopolistic market structure.
A monopolistic competition market structure is a competitive market structure with huge competition, but the market is not perfectly competitive in nature. In a monopolistic competition market structure, the producers create their own version of products with a few similarities and differences, which are yet comparable and competitive in nature. The monopolistic competition market structure is commonly seen in most of the firms in the United States, though the firms are void of market power due to the elasticity of the market. Similar to a perfect competition market structure, the monopolistic competition market structure also defines assumptions. The first assumption is that there are several buyers and sellers in the market and individual firms have no influence on the market. The second assumption is that the products are similar, with minute differences, which can be identified with the help of brand names or labels. The third assumption is that the buyers and sellers in a monopolistic competition market structure possess information about the products, but the knowledge they possess is not as excellent as in the perfect competition market structure. The fourth assumption is that the firms are able to navigate the resources through the market with minimal expenses. The last assumption is that the firms are able to respond rapid to the changes in demand.
In a monopolistic market structure, the consumers are highly benefited as they have the choice to select from a wide variety of products. However, as far as the producers are concerned, the cost production and advertising is high as the producers have to distinguish their products with the products of the competitors. One of the best examples of a monopolistic market structure is the hotel industry as there are several hotels offering the same kind of services to their consumers, but with a difference in the luxuries and comforts. In a short run, the demand slope is a negative curve due to the difference in the price. If a hotel increases the price of the hotel rooms, there are still several customers who wish to pay the higher price in spite of the imperfect competition. Similarly, if a hotel reduces the price of its hotel rooms, new customers are attracted, but at the same time, there are several customers who prefer to stay loyal to other hotels. In the long run, hotels that have a negative economic profit will discontinue their business. If more and more number of firms close their business, the price of the existing firms would increase due to the limited number of producers available. Thus, the negative economic profit will be eliminated. The reverse of the same scenario is also true because it is impossible for all the firms to operate at a positive economic profit. The next section of the paper will mention the characteristics of an oligopoly market structure.
An oligopoly market structure has limited sellers and is well known for its conspiracy against the consumers. There are a few assumptions in an oligopoly market structure. The first assumption is that the market is small with few major sellers who control the market. The second assumption is that the producers are dependent on each other and their actions can influence the competitors. The third assumption is that the products in an oligopoly market structure are homogenous within the company or from a producer to another producer. The firms in an oligopoly are able to maintain their dominant position as it is difficult for the competitors to enter the market due to high costs. The only option left with the competitors is to withstand the competition by bearing the prices or conspire with the competitors and fix the prices to gain profits.
One of the best examples of an oligopoly market structure is the music industry. Since there are only a limited number of firms in the music industry that manufacture, produce and distribute music products, seventy-five percent of the market share is solely concentrated on four major firms. The firms in an oligopoly market structure are always under constant pressure to deliver the best quality and standard of products, and hence, the pricing is dependent on the competition. The oligopolistic firms organize themselves while coordinating decisions, fixing prices and sharing the market to act as a monopoly. In an oligopoly market structure, whenever a firm drops the price of the products, customers tend to get attracted to that particular firm and purchase the goods, which increase the demand of the goods. Unlike the monopoly market structure, an oligopoly market structure often has to face certain barriers while entering the market. Whenever a new firm enters an oligopoly market, it has to face high start-up costs in the form of patents, licenses, raw materials, in addition to the advertising costs to earn reputation in the market. The degree of competition within the oligopoly market affects the demand curve and influences the elasticity of the market. The firms operating individually in an oligopoly market always look for maximum profits and hence influence their competitors. According to the anti-trust laws, the consumers in the United States have all the rights to charge the firms that violate the price policy and increase the price of the products. In addition to gaining knowledge about the four market structures, it is also important to understand the influence of high entry barriers on the competitiveness of the markets.
The entry barriers into a market can be classified as natural and artificial barriers. High barriers are influenced by several factors such as patents of the products, licenses, property rights, economies of scale and control over the resources. Each market structure is influenced in a different way by the high entry barriers. For example, in a perfect competition market structure, there are no high barriers. The firms are free to navigate through the market without any control. However, in a long run, when the demand of products in a perfect competition market structure increases, it would in turn increase the price of the product and shift the demand curve to an upward direction. In the same way, as new firms enter the market, there is a shift in the demand curve that drops the price of the products to make the economic profit as zero. The firms in a perfect competition market structure do not need to promote their products because there are no substitutes and alternates, which allows the buyers to purchase all the goods irrespective of the firms. The next section of the paper will concentrate on the high barriers in a monopoly market.
The firms in a monopoly market are affected by the high entry barriers in a positive way. The firms have the opportunity to earn high economic profits and protect from competition in the long run. Since the firm in a monopoly market is considered to have no competition, the price of the product higher than the marginal and average costs might lead to a loss in efficiency. The scenario might lead to a situation that replaces the inefficient firms by those firms that look for an opportunity to yield profits. When competitors in a monopoly market structure try to overcome the high entry barriers, the structure would no longer persist and would change into a new structure. The next section explains the influence of high entry barriers on a monopolistic competition market structure.
The scenario of monopolistic competition structure is similar to that of the perfect competition market structure, in which there are no high barriers. In a monopolistic competition structure, there are high chances that the firms respond to economic profits easily. Hence, the demand curve shifts towards the down and towards the left as the market sees new firms coming in. The new firms have the chance to navigate through the market as long as the economic profits are accomplishable. The market would experience an equilibrium state as long as the economic profits are zero. A negative impact on the cost efficiency is seen in a monopolistic competition market structure when restrictions are implied on the entry of the firms. The efficiency of monopolistic competition market structure is higher than the perfect competition market structure because of the entry of new firms with innovative products. There are high chances that the inefficient firms will lose grip in a monopolistic competition market structure because the firms benefit only in the short run by the innovation of new products.
An oligopoly market structure needs high entry barriers in order to prevent competition. Strong competition from fellow companies in an oligopoly market structure will result in the destruction of the coordination among the competitors in the market and the economic profit. Since an oligopoly market structure is dominated by a limited number of firms producing similar products, the probability of a competitor developing substitutes for the products is high. Also, there are high chances that an inefficient in an oligopoly market structure is forced to quit the market with the decrease in the prices from other efficient firms to gain a larger space of the market.
This paper explained the various characteristics of the four such market structures, namely perfect competition, monopolistic competition, oligopoly, monopoly. The paper presented illustrative examples of each market structure. In addition to describing the market structures, the paper also mentioned about the high entry barriers and their influence on each market structure for both elastic and inelastic products. It is the responsibility of the economic analysts to inspect and understand the economic market structures and their barriers in order to design and frame efficient business strategies and decisions. The basic knowledge about economics offers the consumers the information and knowledge to interpret and grasp the vital financial consequences that will affect their daily lives either directly or indirectly.