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Notes Of Karnataka Class 12 Commerce Economics Chapter 6 Imperfect Competitive Markets

Notes Of Karnataka Class 12 Commerce Economics Chapter 6 Imperfect Competitive Markets

Karnataka Class 12 Commerce Economics Chapter 6 Imperfect Competitive Markets : Karnatak University (Kannada: ಕರ್ನಾಟಕ ವಿಶ್ವವಿದ್ಯಾಲಯ) is a state university located in the city of Dharwad in the state of Karnataka in India. It was established in October 1949, and officially inaugurated in March 1950. The campus spans 750 acres (3 km²). D. C. Pavate was the first official vice-chancellor from 1954 to 1967. The rapid development of the institution is credited to him.

The university was recognized with the “Potential for Excellence” by the University Grants Commission. The university is the second oldest university in the state of Karnataka after the University of Mysore. The Karnatak university once used to serve most of the Karnataka region including Dharwad, Belagavi, Uttara Kannada, Bijapur, Gulbarga, Raichur, Bidar and Bellary. until the 1980s (Manipal Institute of Technology and the Kasturba Medical College of Manipal were affiliated with Karnatak University at Dharwad and all degrees were awarded by Karnatak University in between the years from 1953 to 1965)

Notes Of Karnataka Class 12 Commerce Economics Chapter 6 Imperfect Competitive Markets

Karnataka Class 12 Commerce Economics Chapter 6 Imperfect Competitive Markets : Economics is “a social science concerned chiefly with description and analysis of the production, distribution, and consumption of goods and services”. Economics focuses on the behavior and interactions of economic agents and how economies work. Consistent with this focus, textbooks often distinguish between microeconomics and macroeconomics. Microeconomics examines the behavior of basic elements in the economy, including individual agents and markets, their interactions, and the outcomes of interactions. Individual agents may include, for example, households, firms, buyers, and sellers. Macroeconomics analyzes the entire economy (meaning aggregated production, consumption, savings, and investment) and issues affecting it, including unemployment of resources (labour, capital, and land), inflation, economic growth, and the public policies that address these issues (monetary, fiscal, and other policies).

Notes Of Karnataka Class 12 Commerce Economics Chapter 6 Imperfect Competitive Markets

Karnataka Class 12 Commerce Economics Chapter 6 Imperfect Competitive Markets  : Introduction Imperfect competitive market refers to a market structure where at least one agent among buyers and sellers, has the power to affect the equilibrium price and quantity. The three different types of imperfect competitive markets are monopoly, monopolistic competition and oligopoly. Monopoly is a market structure where a single firm sells goods or services to large number of buyers as no close substitutes are available. The different features of monopoly are • Single seller and large number of buyers • Restriction on entry of new firms • No close substitutes • Full control over prices Monopolistic competition is found in the industry where there is large number of small sellers, selling differentiated but close substitute products. The different features of monopolistic competition are product differentiation, large number of firms, free entry and free exit of firms, non-price competition, elastic demand curve, etc. A market structure in which there are a few firms in industry producing either homogeneous products or closely differentiated products is called oligopoly.

The different features of oligopoly are as follows:

• few firms

• large number of buyers

• high degree of interdependence

• entry barriers

• selling cost

Imperfect competition is a type of market structure showing some but not all features of competitive markets.

Forms of imperfect competition include:

  • Oligopoly, in which there are few sellers of a product.
  • Monopolistic competition, in which there are many sellers producing highly differentiated products.
  • Monopoly, where there are many buyers but only one seller.
  • Monopsony, where there are many sellers but one buyer.
  • Oligopsony, where there are many sellers but few buyers.

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Notes Of Karnataka Class 12 Commerce Economics Chapter 6 Imperfect Competitive Markets

Karnataka Class 12 Commerce Economics Chapter 6 Imperfect Competitive Markets : Competition is very common and often times very aggressive in a free market place where a large number of buyers and sellers interact with one another. Economic theory describes a number of market competitive structures that takes into account the differences in the number of buyers, sellers, products sold, and prices charged. There are two extreme forms of market competitive conditions; namely, perfectly competitive and imperfectly competitive. The following article provides a clear overview of each type of market competitive structures and provides an explanation of how they are different to one another.

Imperfect competition as the word suggests is a market structure in which the conditions for perfect competition are not satisfied. This refers to a number of extreme market conditions including monopoly, oligopoly, monopsony, oligopsony and monopolistic competition. Oligopoly refers to a market structure in which a small number of sellers compete with each other and offer a similar product to a large number of buyers. Since the products are so similar in nature, there is intense competition among market players, and high barriers to entry since most new firms may not have the capital, technology to startup.

A monopoly is where one firm will control the entire market place, and will hold 100% market share. The firm in a monopoly market will have control over the product, price, features, etc. Such firms usually hold a patented product, proprietary knowledge/technology or holds access to a single important resource. Monospsony is where there are many sellers in the market with just one buyer and oligopsony is where there are a large number of sellers and a small number of buyers. Monopolistic competition is where 2 firms within a market place sell differentiated products that cannot be used as substitutes to each other.

Perfect vs Imperfect Competition

Perfect and Imperfectly competitive markets are very different to one another in terms of the different market conditions that need to be satisfied. The main difference is that, in a perfectly competitive market place, the competitive conditions are much less intense, than any other form of imperfect competition. Furthermore, a perfectly competitive market structure is healthier as buyers have enough options to select from and aren’t, therefore, pressured to purchase one / few products and sellers are able to enter/exit as they please, which is opposite to most market conditions within an imperfectly competitive market place.

Summary

• There are two extreme forms of market competitive conditions; namely, perfectly competitive and imperfectly competitive.

• Perfect competition is where the sellers within a market place do not have any distinct advantage over the other sellers since they sell a homogeneous product at similar prices.

• Imperfect competition as the word suggests is a market structure in which the conditions for perfect competition are not satisfied. This refers to a number of extreme market conditions including monopoly, oligopoly, monopsony, oligopsony and monopolistic competition.

Notes Of Karnataka Class 12 Commerce Economics Chapter 6 Imperfect Competitive Markets

Karnataka Class 12 Commerce Economics Chapter 6 Imperfect Competitive Markets : An imperfect market refers to any economic market that does not meet the rigorous standards of a hypothetical perfectly (or “purely”) competitive market, as established by Marshellian partial equilibrium models. An imperfect market arises whenever individual buyers and sellers can influence prices and production, or otherwise when perfect information is not known to all market actors.

BREAKING DOWN ‘Imperfect Market’

All real-world markets are theoretically imperfect, and the study of real markets is always complicated by various imperfections. For example, traders in a financial market do not possess perfect or even identical knowledge about financial products. The traders and assets in a financial market are not perfectly homogeneous. New information is not instantaneously transmitted to all actors, and there does not exist an infinite velocity of reactions thereafter. Economists only use perfect competition models to think through the implications of economic activity.

The moniker “imperfect market” is somewhat misleading. Lay readers may mistakenly assume an imperfect market is deeply flawed or undesirable, but this is not necessarily true. The range of market imperfections is as wide as the range of all real-world markets; some are much more or much less efficient than others.

What is ‘Imperfect Competition’

Imperfect competition exists whenever a market, hypothetical or real, violates the abstract tenets of neoclassical pure or perfect competition. Since all real markets exist outside of the plane of the perfect competition model, each can be classified as imperfect. The contemporary theory of imperfect versus perfect competition stems from the Cambridge tradition of post-classical economic thought.

BREAKING DOWN ‘Imperfect Competition’

The treatment of perfect competition models in economics, along with modern conceptions of monopoly, were founded by the French mathematician Augustin Cournot in his 1838 “Researches Ito the Mathematical Principles of the Theory of Wealth.” His ideas were adopted and popularized by the Swiss economist Leon Walras, considered by many to be the founder of modern mathematical economics.

Prior to Walras and Cournot, mathematicians had a difficult time modeling economic relationships or creating reliable equations. The new perfect competition model simplified economic competition to a purely predictive and static state. This avoided many problems that exist in real markets, such as imperfect human knowledge, barriers to entry and monopoly.

The mathematical approach gained widespread academic acceptance, particularly in England. Any deviation from the new model of perfect competition was considered a troublesome violation of the new economic understanding.

The New Language of Perfect and Imperfect Competition

One Englishman in particular, William Stanley Jevons, took the ideas of perfect competition and argued that competition was most useful not only when free of price discrimination, but also a small number of buyers or large number of sellers in a given industry.

Thanks to the influences of Jevons, the Cambridge tradition of economics adopted a whole new language for potential distortions in economic markets – some real and some only theoretical. Among these problems were oligopoly, monopolistic competition, monopsony and oligopsony.

Much of the new economic language and analysis was parodied from physics, particularly a focus on indefinite multiplicity, divisibility, infinity and infinitesimally small actors in an equation. Even today, the basic graphs and equations shown in most Economics 101 textbooks hail from these mathematical derivations.

Problems With Concepts of Imperfect Competition

The Cambridge school’s wholesale devotion to creating a static and mathematically calculable economic science had its drawbacks. Ironically, a perfectly competitive market would require the absence of competition. All sellers in a perfect market must sell exactly similar goods at identical prices to the exact same consumers, all of whom possess the same perfect knowledge. There is no room for advertising, product differentiation, innovation or brand identification in perfect competition.

No real market can or could attain the characteristics of a perfectly competitive market. The pure competition model ignores many factors, including the limited deployment of physical capital and capital investment, entrepreneurial activity and changes in the availability of scarce resources. Other economists have adopted more flexible and less mathematically rigid theories of competition, such as the evenly rotating economy, though the language created by the Cambridge tradition still predominates the discipline.

Notes Of Karnataka Class 12 Commerce Economics Chapter 6 Imperfect Competitive Markets

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