Essays /

Government Intervention In Market Essay

Essay preview


The Market Structures

The complete economic activities are handled in four different market structures, namely perfect competition, monopolistic competition, oligopoly and monopoly. The nature and degree of competition varies among the all the above-mentioned four markets.

In summarized manner we can describe that as the number of sellers increases, each firms’ ability to charge high prices reduces. If number of buyers increases then buyers practice to purchase the goods at his choice price diminishes. The sellers have to face price competitions if the product is homogeneous and price and non-price competition exist if goods are differentiable. A large number of buyers and sellers make competition perfect. A homogeneous good with a number of sellers put the market in competition but a homogeneous good in a few sellers and a number of buyers leads the competition in another directions and put sellers in relatively good position. The complete knowledge of buyers and sellers regarding market price and goods encourage fair competition on the other hand incomplete knowledge of product, alluring misleading advertisements and forced differentiation of the goods break the pure competition. Production of a good by a particular producer or a few producers put the economy in their hands (monopoly) but if only a few buyers or a union of the buyers is controlling (monopsony) the market then market becomes non-competitive. All of the above there are some peculiar goods, which are non-excludable (can be consumed by any one without paying the cost) and non-rivalrous (no one has exclusive right over its consumption), that are not produced by any profit making companies such as military service to protect the nation.

Market Failure Causes

From the above discussion it is very clear that except perfect competition rest three market structures are not fulfilling the optimal criteria of economy i.e. high over all economic growth, full employment and fair distribution of income among the different parts of the society. The reasons for such market failure or non-attainment of the Pareto optimality (efficiency in exchange/consumption, efficiency in production and overall Pareto efficiency) are as follows:

1. Imperfect Market: Whenever the market is imperfect as under monopoly, monopolistic competition or oligopoly, the perfect market will fail to achieve the Pareto optimal conditions.

2. Externalities: If the prices in a market do not reflect the true marginal costs and/or marginal benefits associated with the goods and services traded in the market then there must be present of some externality. If the productivity ...

Read more


0 1 2 3 4 5 abil above-ment ac access account achiev activ ad addit adher advantag advertis affect agre agricultur alloc allur alon alreadi also altern although among and/or anoth antitrust associ assumpt assur asymmetr atc attain avail averag b basi becom behavior benefit best break buyer c cabl call cannot captur case caus ceas chang charg choic choos clear close combat come commod compani compel competit complet condit consum consumpt continu control convey corn corn/wheat/soybean cost countri criteria cross current curv d de de-regul deadweight decid decreas degre demand demonstr deregul describ desir determin diagram differ differenti diminish direct discuss display distribut due e e.g earn econom economi effect effici efficieci effort either electr employ encourag ensur enter entri environ environment equal equat equilibrium especi essenti etc everi exceed except exchange/consumption exclud exclus exist exit extern face factor fail failur fair fall figur firm fix flow follow forbid forc format four free fulfil full gas get given good govern graph greater growth hand handl henc high homogen i.e ignor ii imperfect impos imposit incom incomplet increas increment individu industri ineffici influenc inform inherit input intervent introduc know knowledg labor larg law lead leav left less level like local long long-run longrun look lose loss lowest lump lump-sum make maker mani manner margin market maxim maximum may mc mc/ac measur mention militari minim minimum misalloc mislead money monopoli monopolist monopsoni mr msb msc must name nation natur need new non non-attain non-competit non-exclud non-optim non-pric non-rivalr none normal number observ occur oligopoli oligopolies/cartel one oper opportun optim order other outcom output overal oversight p pareto part particular pay peculiar perfect pic point polici posit possibl practic predatori present prevail price privat process produc product production-cost profit protect provid provis public purchas pure put quantiti rais real reason receiv recent reduc reduct refer reflect regard regul relat requir resourc rest restor return revenu right rivalr rule run say scale see sell seller seller/producer servic set shift short shut signal simpli simultan sinc singl small smaller social societi sold solut sometim soybean stage standard status still structur subsidi substitut success sum summar supernorm suppli surviv sustain taken tax taxat technic technolog therefor threat three thus till total trade tremend tri true tv type unabl uncertainti underutil union unit unregul upward use util vari various want water weaker welfar well whatev wheat whenev windfal without word work world would yet zero π