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Karnataka Class 12 Commerce Economics Market Structure Complete Details

Karnataka Class 12 Commerce Economics Market Structure : The Bombay legislature of the erstwhile Bombay Presidency established Karnatak University through the Karnatak University Act 1949. It became a statutory University on 1st March 1950. The jurisdiction of the University covers Dharwad. Gadag, Haveri and Uttar Kannada districts. It has several Post Graduate centres. The University (888 acres) is offering courses in the faculties of Arts, Commerce, Education, Law, Management, Science and Technology and Social Sciences. Symbolic of the University’s vision and mission the emblem of the University consists of papal tree at the centre, an open book. Figures of a bull, a rising sun and the legend ‘Arive Guru’ i.e., Wisdom is Guru, implying that both wisdom and knowledge should be all pervading like the ramifying papal tree and light up the world with knowledge and eradicate illiteracy.

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Karnataka Class 12 Commerce Economics Market Structure Complete Details

Karnataka Class 12 Commerce Economics Market Structure : The economy of India is the sixth-largest in the world measured by nominal GDP and the third-largest by purchasing power parity (PPP). The country is classified as a newly industrialized country, and one of the G-20 major economies, with an average growth rate of approximately 7% over the last two decades. Maharashtra is the wealthiest Indian state with an annual nominal GDP of US$330 billion, roughly equivalent to those of Venezuela and the United Arab Emirates, and accounts for 13.4% of India’s GDP, followed by the states of Tamil Nadu (US$170 billion) and Uttar Pradesh (US$150 billion). India’s economy became the world’s fastest growing major economy in the last quarter of 2014, surpassing the People’s Republic of China.

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Karnataka Class 12 Commerce Economics Market Structure Complete Details

Karnataka Class 12 Commerce Economics Market Structure :  Market structure refers to the nature and degree of competition in the market for goods and services. The structures of market both for goods market and service (factor) market are determined by the nature of competition prevailing in a particular market.

Meaning of Market:

Karnataka Class 12 Commerce Economics Market Structure : Ordinarily, the term “market” refers to a particular place where goods are purchased and sold. But, in economics, market is used in a wide perspective. In economics, the term “market” does not mean a particular place but the whole area where the buyers and sellers of a product are spread.

This is because in the present age the sale and purchase of goods are with the help of agents and samples. Hence, the sellers and buyers of a particular commodity are spread over a large area. The transactions for com­modities may be also through letters, telegrams, telephones, internet, etc. Thus, market in economics does not refer to a particular market place but the entire region in which goods are bought and sold. In these transactions, the price of a commodity is the same in the whole market.

Karnataka Class 12 Commerce Economics Market Structure : According to Prof. R. Chapman, “The term market refers not necessarily to a place but always to a commodity and the buyers and sellers who are in direct competition with one another.” In the words of A.A. Cournot, “Economists understand by the term ‘market’, not any particular place in which things are bought and sold but the whole of any region in which buyers and sellers are in such free intercourse with one another that the price of the same goods tends to equality, easily and quickly.” Prof. Cournot’s definition is wider and appropriate in which all the features of a market are found.

Download here Karnataka Commerce Class 12 Economics Market Structure Complete Details In PDF Format 

Contents :

1. Meaning of Market

2. Characteristics of Market

3. Market Structure

4. Forms of Market Structure

Characteristics of Market:

The essential features of a market are:

(1) An Area:

Karnataka Class 12 Commerce Economics Market Structure : In economics, a market does not mean a particular place but the whole region where sellers and buyers of a product ate spread. Modem modes of communication and transport have made the market area for a product very wide.

(2) One Commodity:

In economics, a market is not related to a place but to a particular product.

Hence, there are separate markets for various commodities. For example, there are separate markets for clothes, grains, jewellery, etc.

(3) Buyers and Sellers:

The presence of buyers and sellers is necessary for the sale and purchase of a product in the market. In the modem age, the presence of buyers and sellers is not necessary in the market because they can do transactions of goods through letters, telephones, business representatives, internet, etc.

(4) Free Competition:

There should be free competition among buyers and sellers in the market. This competition is in relation to the price determination of a product among buyers and sellers.

(5) One Price:

The price of a product is the same in the market because of free competition among buyers and sellers.

On the basis of above elements of a market, its general definition may be as follows:

The market for a product refers to the whole region where buyers and sellers of that product are spread and there is such free competition that one price for the product prevails in the entire region.

Market Structure:

Meaning:

Karnataka Class 12 Commerce Economics Market Structure : Market structure refers to the nature and degree of competition in the market for goods and services. The structures of market both for goods market and service (factor) market are determined by the nature of competition prevailing in a particular market.

Determinants:

There are a number of determinants of market structure for a particular good.

They are:

(1) The number and nature of sellers.

(2) The number and nature of buyers.

(3) The nature of the product.

(4) The conditions of entry into and exit from the market.

(5) Economies of scale.

They are discussed as under:

1. Number and Nature of Sellers:

The market structures are influenced by the number and nature of sellers in the market. They range from large number of sellers in perfect competition to a single seller in pure monopoly, to two sellers in duopoly, to a few sellers in oligopoly, and to many sellers of differentiated products.

2. Number and Nature of Buyers:

The market structures are also influenced by the number and nature of buyers in the market. If there is a single buyer in the market, this is buyer’s monopoly and is called monopsony market. Such markets exist for local labour employed by one large employer. There may be two buyers who act jointly in the market. This is called duopsony market. They may also be a few organised buyers of a product.

This is known as oligopsony. Duopsony and oligopsony markets are usually found for cash crops such as rice, sugarcane, etc. when local factories purchase the entire crops for processing.

3. Nature of Product:

It is the nature of product that determines the market structure. If there is product differentiation, products are close substitutes and the market is characterised by monopolistic competition. On the other hand, in case of no product differentiation, the market is characterised by perfect competition. And if a product is completely different from other products, it has no close substitutes and there is pure monopoly in the market.

4. Entry and Exit Conditions:

Karnataka Class 12 Commerce Economics Market Structure :The conditions for entry and exit of firms in a market depend upon profitability or loss in a particular market. Profits in a market will attract the entry of new firms and losses lead to the exit of weak firms from the market. In a perfect competition market, there is freedom of entry or exit of firms.

But in monopoly and oligopoly markets, there are barriers to entry of new firms. Usually, governments have a monopoly in public utility services like postal, air and road transport, water and power supply services, etc. By granting exclusive franchises, entries of new supplies are barred. In oligopoly markets, there are barriers to entry of firms because of collusion, tacit agreements, cartels, etc. On the other hand, there are no restrictions in entry and exit of firms in monopolistic competition due to product differentiation.

5. Economies of Scale:

Firms that achieve large economies of scale in production grow large in comparison to others in an industry. They tend to weed out the other firms with the result that a few firms are left to compete with each other. This leads to the emergency of oligopoly. If only one firm attains economies of scale to such a large extent that it is able to meet the entire market demand, there is monopoly.

Forms of Market Structure:

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On the basis of competition, a market can be classified in the following ways

1. Perfect Competition

2. Monopoly

3. Duopoly

4. Oligopoly

5. Monopolistic Competition

1. Perfect Competition Market:

Karnataka Class 12 Commerce Economics Market Structure : A perfectly competitive market is one in which the number of buyers and sellers is very large, all engaged in buying and selling a homogeneous product without any artificial restrictions and possessing perfect knowledge of market at a time. In the words of A. Koutsoyiannis, “Perfect competition is a market structure characterised by a complete absence of rivalry among the individual firms.” According to R.G. Lipsey, “Perfect competition is a market structure in which all firms in an industry are price- takers and in which there is freedom of entry into, and exit from, industry.”

2. Monopoly Market:

Karnataka Class 12 Commerce Economics Market Structure : Monopoly is a market situation in which there is only one seller of a product with barriers to entry of others. The product has no close substitutes. The cross elasticity of demand with every other product is very low. This means that no other firms produce a similar product. According to D. Salvatore, “Monopoly is the form of market organisation in which there is a single firm selling a commodity for which there are no close substitutes.” Thus the monopoly firm is itself an industry and the monopolist faces the industry demand curve.

3. Duopoly:

Karnataka Class 12 Commerce Economics Market Structure : Duopoly is a special case of the theory of oligopoly in which there are only two sellers. Both the sellers are completely independent and no agreement exists between them. Even though they are inde­pendent, a change in the price and output of one will affect the other, and may set a chain of reactions. A seller may, however, assume that his rival is unaffected by what he does, in that case he takes only his own direct influence on the price.

4. Oligopoly:

Karnataka Class 12 Commerce Economics Market Structure : Oligopoly is a market situation in which there are a few firms selling homogeneous or differenti­ated products. It is difficult to pinpoint the number of firms in ‘competition among the few.’ With only a few firms in the market, the action of one firm is likely to affect the others. An oligopoly industry produces either a homogeneous product or heterogeneous products.

Characteristics of Oligopoly:

In addition to fewness of sellers, most oligopolistic industries have several common characteris­tics which are explained below:

(1) Interdependence:

There is recognised interdependence among the sellers in the oligopolistic market. Each oligopolist firm knows that changes in its price, advertising, product characteristics, etc. may lead to counter-moves by rivals. When the sellers are a few, each produces a considerable fraction of the total output of the industry and can have a noticeable effect on market conditions.

(2) Advertisement:

The main reason for this mutual interdependence in decision making is that one producer’s fortunes are dependent on the policies and fortunes of the other producers in the indus­try. It is for this reason that oligopolist firms spend much on advertisement and customer services.

As pointed out by Prof. Baumol, “Under oligopoly advertising can become a life-and-death matter.” For example, if all oligopolists continue to spend a lot on advertising their products and one seller does not match up with them he will find his customers gradually going in for his rival’s product. If, on the other hand, one oligopolist advertises his product, others have to follow him to keep up their sales.

(3) Competition:

This leads to another feature of the oligopolistic market, the presence of com­petition. Since under oligopoly, there are a few sellers, a move by one seller immediately affects the rivals. So each seller is always on the alert and keeps a close watch over the moves of its rivals in order to have a counter-move. This is true competition.

(4) Barriers to Entry of Firms:

As there is keen competition in an oligopolistic industry, there are no barriers to entry into or exit from it. However, in the long run, there are some types of barriers to entry which tend to restraint new firms from entering the industry.

(5) Lack of Uniformity:

Another feature of oligopoly market is the lack of uniformity in the size of firms. Finns differ considerably in size. Some may be small, others very large. Such a situation is asymmetrical. This is very common in the American economy. A symmetrical situation with firms of a uniform size is rare.

(6) Demand Curve:

It is not easy to trace the demand curve for the product of an oligopolist. Since under oligopoly the exact behaviour pattern of a producer cannot be ascertained with certainty, his demand curve cannot be drawn accurately, and with definiteness. How does an individual seller s de­mand curve look like in oligopoly is most uncertain because a seller’s price or output moves lead to unpredictable reactions on price-output policies of his rivals, which may have further repercussions on his price and output.

(7) No Unique Pattern of Pricing Behaviour:

The rivalry arising from interdependence among the oligopolists leads to two conflicting motives. Each wants to remain independent and to get the maximum possible profit. Towards this end, they act and react on the price-output movements of one another in a continuous element of uncertainty.

5. Monopolistic Competition:

Monopolistic competition refers to a market situation where there are many firms selling a differ­entiated product. “There is competition which is keen, though not perfect, among many firms making very similar products.” No firm can have any perceptible influence on the price-output policies of the other sellers nor can it be influenced much by their actions. Thus monopolistic competition refers to competition among a large number of sellers producing close but not perfect substitutes for each other.

It’s Features:

The following are the main features of monopolistic competition:

(1) Large Number of Sellers:

In monopolistic competition the number of sellers is large. They are “many and small enough” but none controls a major portion of the total output. No seller by chang­ing its price-output policy can have any perceptible effect on the sales of others and in turn be influenced by them. Thus there is no recognised interdependence of the price-output policies of the sellers and each seller pursues an independent course of action.

(2) Product Differentiation:

One of the most important features of the monopolistic competi­tion is differentiation. Product differentiation implies that products are different in some ways from each other. They are heterogeneous rather than homogeneous so that each firm has an absolute monopoly in the production and sale of a differentiated product. There is, however, slight difference between one product and other in the same category.

Products are close substitutes with a high cross-elasticity and not perfect substitutes. Product “differentiation may be based upon certain characteristics of the prod­ucts itself, such as exclusive patented features; trade-marks; trade names; peculiarities of package or container, if any; or singularity in quality, design, colour, or style. It may also exist with respect to the conditions surrounding its sales.”

(3) Freedom of Entry and Exit of Firms:

Another feature of monopolistic competition is the freedom of entry and exit of firms. As firms are of small size and are capable of producing close substitutes, they can leave or enter the industry or group in the long run.

(4) Nature of Demand Curve:

Under monopolistic competition no single firm controls more than a small portion of the total output of a product. No doubt there is an element of differentiation neverthe­less the products are close substitutes. As a result, a reduction in its price will increase the sales of the firm but it will have little effect on the price-output conditions of other firms, each will lose only a few of its customers.

Likewise, an increase in its price will reduce its demand substantially but each of its rivals will attract only a few of its customers. Therefore, the demand curve (average revenue curve) of a firm under monopolistic competition slopes downward to the right. It is elastic but not perfectly elastic within a relevant range of prices of which he can sell any amount.

(5) Independent Behaviour:

In monopolistic competition, every firm has independent policy. Since the number of sellers is large, none controls a major portion of the total output. No seller by changing its price-output policy can have any perceptible effect on the sales of others and in turn be influenced by them.

(6) Product Groups:

There is no any ‘industry’ under monopolistic competition but a ‘group’ of firms producing similar products. Each firm produces a distinct product and is itself an industry. Chamberlin lumps together firms producing very closely related products and calls them product groups, such as cars, cigarettes, etc.

(7) Selling Costs:

Under monopolistic competition where the product is differentiated, selling costs are essential to push up the sales. Besides, advertisement, it includes expenses on salesman, allowances to sellers for window displays, free service, free sampling, premium coupons and gifts, etc.

(8) Non-price Competition:

Under monopolistic competition, a firm increases sales and profits of his product without a cut in the price. The monopolistic competitor can change his product either by varying its quality, packing, etc. or by changing promotional programmes.

The features of market structures are shown in Table 1.

http://www.yourarticlelibrary.com/economics/economic-problems/the-main-uses-of-production-possibility-curve/36606

Download here Karnataka Commerce Class 12 Economics Market Structure Complete Details In PDF Format 

Karnataka Class 12 Commerce Economics Market Structure Complete Details

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