Market Structures and Government Intervention

1500 Words6 Pages
Market Structures and Government Intervention Market structures are the characteristics of a market which determine firms’ behavior. These aspects include the number and size of the firms, the nature of the product sold and the ease or difficulty of new firms into a particular industry or market. Economists differentiate these market structures using the aforementioned facets as well as properties such as the number of firms which might enter the market, the extent to which goods in the market are similar and the extent to which the actions of one firm will affect another firm. Using these characteristics, four major market structures can be classified in the Australian economy. These structures are: perfect competition, monopolistic competition, oligopoly and monopoly. Within these four market structures, government intervention is needed for various reasons. Perfect competition is a market structure that has a large number of buyers and sellers who have little to no influence over prices or output. Other features of a perfectly competitive market are; that there is freedom of entry and exit from the market, meaning that firms are able to establish themselves in the industry easily and quickly and that there are no barriers to entry. Also, all firms produce a homogenous product, with little to no branding, where products are perfect substitutes for each other in the market such as milk. In addition, there is perfect mobility, so buyers do not incur any cost for moving from one seller to another. Lastly, buyers and sellers possess perfect knowledge of the prices and the output, therefore if one seller charges a higher price than the market price, buyers will move elsewhere. Hence the firm has to accept the market price if it wishes to sell its products in the market. The market price becomes the firm’s demand curve and this would be perfectly elastic since perfect

More about Market Structures and Government Intervention

Open Document