Chapter 18: MISCELLANEOUS PART 2
TYPES OF MARKET STRUCTURES
- Participants are high both buyers and sellers.
- Products have many substitutes and no marketing or
selling cost is incurred.
- Knowledge of participants for entering into market is
- Seller is Price taker not Price maker.
- Buyer willing to buy all at a certain price but none at
price higher. So he is price maker.
- Buyers are many but seller is one.
- Product has no substitute or no close substitute
- Other competitors cant enter in market due to laws or
- Price discrimination is seen between poor and rich.
Seller is Price maker.
- Relative Price inelastic increase means demand decreases
by less than X% for X% increase in price.
Natural monopoly is when there is extremely high
fixed cost of distribution e.g. gas, water, electricity.
- Many buyers and sellers but each selling its
differentiated version of good.
- Marketing selling cost is high. Goods are of different
brands where brand loyalty is seen till a limit but many
substitutes are available.
- Unrestricted and free entry.
- Seller is Price maker to a level.
- Price increases by x% but demand decreases by less than
x% - relatively inelastic. But more elastic than monopoly.
- Buyers many but sellers few with intense competition.
- Product has close substitute and intense competition
amongst sellers. If one sellers introduces change others
have to follow. High cost of marketing and selling.
- Entry of new sellers tough due to economies of scale.
- Seller is price maker.
- Monopoly of the buyer but multiple sellers present.
- Entry closed for other buyers
- Seen where government wants to make a defense related
purchase and multiple sellers are bidding for it.
- Buyer is price maker.
Economic cost is the summation of explicit
cost , implicit cost and normal profit. Explicit
cost is needed for hiring or purchasing, implicit cost is
incurred from own land or capital and normal profit is seen
in monopolistic competition / perfect competition whereas
abnormal profit is seen in monopsony, monopoly and
Economic cost is accounting cost plus opportunity cost.
Example is if a boy attends college then the accounting
cost is calculated as a sum of tuition fee, travelling, cost
of books, exam fee. But opportunity cost is the salary he
could have earned if he had worked. Hence if his accounting
cost is Rs. 1 lakh and opportunity cost is Rs. 2 lakh then
the economic cost of attending college for him is Rs. 3
Social cost is economic cost plus external cost. External
cost is externalities like damage to environment done by the
Total cost is sum of total fixed costs and total
variable costs. Fixed costs are taxes, rents,
license fee, depreciation. Variable costs are salary of
casual workers, raw materials etc.
The total cost and total variable cost are parallel
The total fixed cost is a straight line but the
average fixed cost depends on the outputs and more the
outputs more it will decline. Its shape is a Rectangular
Fig 1: Total cost curve
Basic terms of Microeconomics
Want / Desire - Primary wants are
food, shelter, clothing and secondary wants are comfort
Consumption - Using goods and
services to satisfy wants.
Utility - Satisfying power of a good
or service. Marginal utility is the maximum price a
consumer is willing to pay.
Production - Making goods or services
that have utility. Marginal price of production is
minimum profit a producer expects.
Demand - Willingness to buy a good at
a certain price at a certain time.
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