Competitive and Monopolistic Markets

Characteristics of a competitive market

According to Tucker (2008), a competitive market has unlimited buyers and sellers of goods and services. In other words, the demand for goods and services by consumers is infinite and at the same time, producers have the liberty to supply goods and services to the market at a price they think favorable. Regarding factors of production, a perfectly competitive market enhances the easy movement of goods and services especially when the market is not conducive for business. Adjustments that may go for a long period can be affected easily. Pertinent market information like the price of commodities and services is within the domain of both buyers and sellers. It is an open marketing system to both consumers and producers. Additionally, there are no costs which are incurred by producers and consumers in the process of buying and selling.

Structure of a competitive market

In a competitive market, all the players have an active role in the determination of the price of goods and services in the market. There is no single participant who has sole command of the market prices.

Impacts on the supply of goods and services

In a case whereby there are multiple buyers and sellers, the market outcomes will not be determined by any single operator. Hence, the supply of goods and services will mainly be affected by the general market forces like that of demand and supply. The cost of production is equally minimized as low as possible in a perfectly competitive market to optimize returns. Therefore, this type of market structure will favor the supply of more goods and services when the prices are high and vice versa (Tucker, 2008).

Effect this has on the price of goods

The price of goods and services in a competitive market often acts as an indicator for making decisions. Producers can adjust their output levels accordingly depending on the market price. Thus, when the price is low, producers tend to reduce the volume of production but adjust it higher when prices shoot up.

Characteristics of a monopolistic market

A monopolistic market is characterized by an exclusive dominance by a single business organization in the process of buying and selling goods and services (Tucker, 2008). Further, there is no clear-cut difference between the industry and the business organization hence, the latter acts in the same capacity as an industry. Over and above, a monopolistic market completely differs from a competitive market because the producers dictate the price and therefore are not price takers because they are the only suppliers to the market.

Structure of a monopolistic market

A monopolistic market describes a form of market structure in which a given market environment is dominated by a single producer and whereby the latter dictates the price, demand, and supply of goods and services within the given market environment (Tucker, 2008). Such a situation may arise from the existing barriers which tend to hinder other players from entering the market.

Impacts on the supply of goods and services

In a monopolistic market structure, a single business organization controls the number of goods and services to be supplied in the market. Hence, the sole player can adjust supply at will without necessarily affecting the price of goods and services. Alternatively, if the producer wants to increase the number of sales, then it is easily achieved by increasing production.

Effect on the price of goods

A monopolistic market enjoys the elasticity of price. The monopolist can raise or lower the price at will because there is no competition from rival firms. As a result, consumers are compelled to bear with the conditions of the sole seller (Tucker, 2008).

Comparing and contrasting the competitive and monopolistic markets

In a perfectly competitive market, many buyers and sellers dictate the price of goods and services unlike in a monopolistic market whereby only one player possesses the market. However, both market structures have one thing in common: the producer dictates the number of goods and services to be supplied. Hence, the elasticity of supply exists in both.

Reference

Tucker, B.I. (2008). Survey of Economics, Mason: Cengage Learning.

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