a) Main characteristics of a market:
1. Buyers and sellers: A market consists of both buyers and sellers who participate in the exchange of goods or services.
2. Exchange: The market facilitates the buying and selling of goods, services, or resources between buyers and sellers.
3. Price mechanism: Prices are determined through the interaction of supply and demand in the market.
4. Competition: The level of competition varies across market structures and affects the behavior of buyers and sellers.
5. Market structure: Different market structures have varying degrees of competition and concentration of market power.
b) Examples and determinants of market structures:
1. Perfect Competition:
Characteristics:
A large number of buyers and sellers.
Homogeneous products (identical or nearly identical).
Easy entry and exit for firms.
Perfect information transparency.
Price takers (firms cannot influence market price).
Example: Agricultural commodity market (e.g., wheat market)
Determinants:
• Numerous farmers and agricultural producers.
• Standardized agricultural products.
• Low barriers to entry for new farmers.
• Market information is readily available through exchanges, reports, and data.
2. Monopolistic Competition:
Characteristics:
• Many buyers and sellers.
• Differentiated products (product differentiation).
• Relatively easy entry and exit.
• Limited market power (firms have some control over prices).
Example: Fast food restaurant industry
Determinants:
• Multiple fast-food chains offer different menus and branding.
• Each chain has some control over prices within its own market segment.
• Relatively low barriers to entry for new fast food chains.
3. Oligopoly:
Characteristics:
• Few large interdependent firms dominate the market.
• Differentiated or homogeneous products.
• Significant barriers to entry.
• Interdependence among firms in terms of pricing and output decisions.
Example: Mobile phone manufacturing industry
Determinants:
• A few dominant companies, such as Apple, Samsung, and Huawei, with significant market share.
• Product differentiation through branding, features, and technology.
• High barriers to entry due to the need for substantial investments in research, development, and distribution.
4. Monopoly:
Characteristics:
• Single seller or dominant firm in the market.
• No close substitutes for the product.
• High barriers to entry, limiting competition.
• Significant market power to influence prices and output.
Example: Microsoft Corporation (in the operating system market)
Determinants:
• Microsoft has a dominant position in the operating system market with its Windows platform.
• No direct substitute for Windows in terms of compatibility and market share.
• High barriers to entry due to intellectual property rights, established market presence, and network effects.
Note: These examples are not exhaustive, and market structures can be found in various industries. The determinants provided are general factors that influence the specific market structures but may vary depending on the industry and context.