ECONOMIC DEVELOPMENT

MARKET
STRUCTURES
GROUP 8
 Familiarize with the concept of a
market and different kinds of
market structures.
LEARNING
Objectives
Identify the products belonging
to a certain market structure and
classify the products available in
the market.

Explain the importance of market

in determining prices of goods in
the market.
CONCEPT OF
A MARKET
MARKET

WHAT IS MARKET
STRUCTURE?
Nature of competition, pricing
power, and interaction
between buyers and sellers.
Categorizes industries based
on the number of firms,
product differentiation, and
ease of entry/exit.
MARKET
An arena, system, or mechanism where buyers
and sellers interact to voluntarily exchange
goods, services, or information, with prices
determined by supply and demand.

Physical Market
Virtual/Digital Market
Financial Market
Consumer Market
ASPECTS OF MARKET:

Mechanism for Exchange:

Markets allow for the trading of
goods and services, often using
currency, which enables
specialization and trade, essential
for economic growth.
ASPECTS OF MARKET:

Price Discovery:
Through the forces of supply and
demand, markets determine the
fair value of products and services,
allowing resources to be allocated
to their most valued uses.
ASPECTS OF MARKET:

Competition and Efficiency:

Competition between sellers drives
down costs, fosters innovation, to
become more productive to gain a
competitive edge.
ASPECTS OF MARKET:

Role in Growth:
Entrepreneurs in a market economy
drive economic development by
combining resources, creating jobs,
and boosting productivity, which can
result in higher wealth for
participants.
 SUPPLY AND DEMAND
Where the prices for goods and other
services are determined.
The sellers create supply, while buyers
generate demand.
Can be disrupted by factors including
incomes, expectations, technology, the
cost of production, and the number of
buyers and sellers participating.
 DIFFERENT KINDS
OF
MARKET STRUCTURES
Large number of company competing with
PERFECT COMPETITION
each other

Offering similar product

There is no incentive for innovation

There are also very few barriers to entry

In perfect competition, a firm faces a

perfectly elastic demand curve.
Demand Curve
 ADVANTAGES DISADVANTAGES

no misinfomation because the Lack of Product Variety (No

information is spread evenly. Differentiation)

There is no existing barrier Low or No Long-Run Profit

There is no need for Survival is Difficult (High

advertisement Competition Pressure)
 Outpost Decision ( Profit Maximization)

A competitive firm produces where:

MR = MC

Since MR equals price in perfect competition, the decision rule becomes:

P = MC
 Short Run Result

In the short run, the firm may earn:

Profit if P > ATC
Break-even if P = ATC
Loss if P < ATC

Even if a firm has losses, it may continue

producing if it can pay its variable costs.
 In the long run, firms can enter and exit
freely:

If firms earn profit → more firms

→ →
enter supply rises price falls
If firms lose money → firms exit→
Long Run Result →
supply falls price rises

The market reaches equilibrium where:

P = ATC (normal profit only)

 MONOPOLY
There is only one company that
produces a product without a close
subtitute.

The monopolist is a price maker.

They can also maintain

supernormal profit in the long run.
Type of Monopoly

Natural Monopoly - It is when one company can produce and deliver goods
efficiently other than multiple companies could. The company can also
provide the service at a lower price per unit
Legal Monopoly - This exist due to government legislation and protection
and it is a private owned companies.
Government Monopoly - This type of company is owned and operated by
the government, it is a publicaly owned
Patent Monopoly - protection of an invention under patent laws
Resource Monopoly - A single firm virtual control of an entire resource’s
supply results in a resource monopoly
 ADVANTAGES DISADVANTAGES

Stability of Price Higher prices

Economies of Scale Price discrimination

The monopolist can maintain or Inferior goods and services

achieve supernormal profit
 Demand Curve

In monopoly:
Price > MR ,because lowering price
affects all units sold, not just the extra
unit.
Demand Curve
A monopolist chooses output where:
MR = MC

Then it sets the price based on the demand

curve.
Price and Output Decision
Monopoly does NOT produce where P =
MC like perfect competition.
Instead:
P > MC
 Short and Long Run Result

Monopolies can earn profits

in both short run and long
run because entry is
restricted.

A monopoly earns profit

when:
Price > ATC
Numerous firms compete for the same MONOPOLISTIC COMPETITON
group of customers.

Products are similar but not identical;

differences arise from branding,
quality, or physical attributes.

In monopolistic competition, the

demand curve is downward-sloping
and highly elastic due to the presence
of many close substitutes.
Demand Curve
 ADVANTAGES DISADVANTAGES

Having many competitors limits

Few barriers to entry for new access to economies of scale
companies Inefficient company spending on
Variety of choices for consumers marketing, packaging, and
Company decision-making advertising
power for prices and marketing Too many choices for consumers
Consistent quality of product for means extra research required
consumers Misleading advertising or
imperfect information for
consumers
 Short Run Result

Profit Outcomes:
Supernormal Profit:
Occurs if 𝐴𝑅>𝐴𝑇𝐶 at the
equilibrium output.
Normal Profit: Occurs if
𝐴𝑅=𝐴𝑇𝐶 (break-even point).
Loss: Occurs 𝐴𝑅<𝐴𝑇𝐶
 Long Run Result
For a firm in long-run equilibrium:
Profit Maximization: MR = MC
(Marginal Revenue equals
Marginal Cost)
Zero Profit: P = ATC (Price
equals Average Total Cost)
Price Choice: P > MC (The firm
still has some market power,
so price stays above marginal
cost)
A small number of large firms control
OLIGOPOLY
the vast majority of the market share.

Significant obstacles (e.g., high startup

costs, patents, or economies of scale)
make it difficult for new competitors to
enter.

In an oligopoly, the demand curve for an

individual firm isn't a simple downward
slope but often has a "kink" at the
current market price.
Demand Curve
 ADVANTAGES DISADVANTAGES

High barriers to entry for new

Limited competition
participants

Higher profits for companies

Lack of innovation

Greater consumer demand

Very little choice for consumers
 Short and Long Run Result

In the short run, the

number of firms is
fixed, whereas in the
long run, entry and
exit of firms is
possible, based on
profit conditions.
 PRODUCTS
BELONGING TO A
CERTAIN MARKET
STRUCTURE
1. PERFECT COMPETITION
CHARACTERISTICS: Many small firms, identical products, easy
entry/exit.

AGRICULTURAL
Wheat from various
COMMODITIES farms.
- These are classic due
to uniformity across
producers. Corns
AGRICULTURAL
COMMODITIES

Eggs Vegetables

Fruits
Rice

Sugar Coffee
DAIRY AND
STAPLES
Raw milk or basic
- Basic goods dairy products
interchangeable
between suppliers.
White bread
loaves
 OTHER
EXAMPLES Foreign exhange
markets
- Non-farm
markets
approximating the
structure.
2. MONOPOLISTIC COMPETITION
CHARACTERISTICS: Many firms, differentiated products, low
barriers to entry, heavy advertising.

Fast food
RESTAURANTS chains
AND FOOD
- Diverse options Coffee shops
compete on taste,
ambiance, and service.
Bakeries
 CLOTHING AND
PERSONAL CARE
- Branding creates perceived differences in similar items.

Clothing from various Toothpaste varieties

apparel brands. (e.g., whitening
formulas).​

Soap or shampoo
Footwear like with scents and
casual shoes. packaging.​
OTHER CONSUMER Breakfast cereals
GOODS
Snacks
- Everyday items
differentiated by
Make up
marketing.
Laundry
soaps
3. OLIGOPOLY
CHARACTERISTICS: A few large firms dominating the market,
high barriers to entry, interdependent pricing.

Crude oil and

HOMOGENEOUS gasoline
PRODUCTS
- These are identical Steel and
commodities produced aluminum
by giants
Cement
DIFFERENTIATED
PRODUCTS - Branded items where firms compete
on features, ads, and innovation.

Automobiles (cars
from Toyota, Ford,
etc.) Soft drinks (Coca-
Cola, Pepsi).

Smartphones Airlines
(Apple, (commercial
Samsung) flights)
 4. MONOPOLY
CHARACTERISTICS: One seller, unique product, blocked entry
to the market.

Electricity providers
(e.g., MERALCO in
PUBLIC UTILITIES Metro Manila)
- Essential services
with massive setup Water supply
costs
Natural gas pipelines
 PATENTED TELECOM AND
GOODS TRANSPORT
- Exclusive rights block PLDT landline
competition temporarily. services
(dominant
historically).
Specific
prescription MRT-3 rail
drugs under operations
patent. (single
operator).
 IMPORTANCE OF
MARKET IN
DETERMINING PRICES
OF GOODS
WHAT IS MARKET?

Where buyers and sellers

interact
Goods and services are
exchanged
Prices are formed through
buying and selling
Includes physical and
online markets
HOW IS IT
-is bringing together demand
IMPORTANT IN
PRICING? (buyers) and supply (sellers).
demand for a good (+) and
supply remains constant,
prices tend rise ( ⬆️)
Interaction of - supply (+) and demand
Demand and remains constant, prices tend to
Supply ( ⬇️ )
The market price is
determined at the point
where:
- quantity demanded
equals quantity supplied.

the EQUILIBRIUM PRICE.

Equilibrium price occurs when
quantity demanded equals WHAT IS EQUILIBRIUM PRICE?
quantity supplied. At price P5:

Firms can sell any quantity

produced at this price.
No incentive to raise prices,
as higher prices lead buyers
to competitors.
 WHAT IS EQUILIBRIUM PRICE?
No incentive to lower
prices, as selling slightly
cheaper doesn't increase
sales due to market
absorption at P5.
Prices in the market serve as signals for both
producers and consumers:

High prices indicate strong demand,

prompting producers to increase
production.
Low prices suggest weak demand or
excess supply, leading producers to
reduce output.
.
 The market efficiently
allocates scarce resources
like :
- labor
-land
-capital
 ▪︎Competitive markets
promote fair pricing

▪︎ This competition
prevents excessive pricing
by sellers and keeps
prices from being too low.
5. Adjusts Prices to Changes in Economic
Conditions

Markets are dynamic and responsive.

Prices change quickly in response to:
Changes in consumer preferences
Technological improvements
Natural disasters or shortages
Inflation and income levels
 6. Market prices 7. Market prices guide
encourage efficiency consumer choice by
and innovation by enabling comparisons
rewarding producers - income
who lower costs or - preferences
enhance quality. - allowing for
maximized satisfaction
 8. Properly functioning markets
naturally determine prices,
minimizing the need for government
price fixing.
THANK YOU!