Case 3 (Elastic) represented by a flat demand curve, nearly horizontal, shows consumers are price sensitive to these items because a small price change causes a large drop in quantity demanded. (Mostly wants, like branded items like Chanel bags
and luxuries like air travel) Elastic items tend to have available substitutes that consumers can switch to immediately if the price increases. Market structures Wha-wha-wha WHAAAAAATTTT?? Extremes: Perfect competition (Lots of firms making up the industry) and Monopoly (Dominated by one producer) Different companies can be organised according to their market structure. There are 4 main market structures, meaning there are 4 different ways a market can be organised. Perfect Competition, Monopolistic Competition, Oligopoly and Monopoly.
E.g. Teh Tarik, lots of sellers in Singapore, but For perfect competition, All seller sell identical goods at the same price. For monopolistic, products are similar items but differentiated from each other, resulting in different prices. For Oligopoly (A few) a few firms in the market dominating. E.G. Iphone, Samsung Last is monopoly, where one company dominates the entire market. (Complete market power means people can raise price, but people cannot do anything as there are no substitutes) Think of market structures as a diagram, like above, where left has many firms each one is small and all competing over an identical item, and on the right there is only one company and one unique item. Perfect Competition 4 main characteristics 1) Fragmented, many buyers and sellers. 2) Products are all identical, Homogenous 3) Consumers have perfect information on all prices, quality and about the sellers, charged by all sellers in the market. 4) No entry or exit barriers to this market. (Easy to start business in this industry, and easy to stop too) Examples include Food and Beverages, or food and agricultural products that are generic items. Like fruits and vegetables, most things that come from nature.
Diagram for Perfect market 0 1 2 3 4 5 6 7 8 9 10 0 1 2 3 4 5 4.5 0.5 Quantity (Units) Price ($S) 0 1 2 3 4 5 6 7 8 9 10 0 1 2 3 4 5 2.5 Quantity (Units) Price ($S) Left side diagram represents the market where you have an equilibrium point (not there yet) which tells us the current average price of a good (P e ) and the total amount of item sold in the market by all firms added up (Q e ). The right diagram shows only one firm of the many in the market. This firm has no market power due to the presence of lots of competition and it is a very small firm, and its product doesn’t stand out (Not unique). So this firm is called a price taker, it takes the market price and charge that price, it cannot change the price. This is why
the graph is a horizontal line, it can sell any amount of quantity it likes according to its CELL concept, as long as it follows the (P e ) price.
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