Distinguish between a perfect market and a... | WAEC SSCE - Economics - 2001

Question 1 Report

Distinguish between a perfect market and a monopolistic market.

Answer

A perfect (perfectly competitive) market and a monopolistic (imperfectly competitive) market differ on several like features:

Feature	Perfect market	Monopolistic market
Number of sellers	Very many sellers, each too small to affect price	One seller (pure monopoly) or few, so the seller has market power
Nature of product	Homogeneous (identical) products	Unique product with no close substitute
Price control	Firm is a price taker; price set by market demand and supply	Firm is a price maker/setter; can influence price
Entry and exit	Free entry and exit into the industry	Barriers to entry (patents, control of raw materials, large capital, law)
Knowledge	Perfect knowledge of market by buyers and sellers	Imperfect knowledge of the market
Demand curve facing the firm	Perfectly elastic (horizontal) at the ruling price	Downward sloping demand curve
Price and output	Lower price, larger output; normal profit in the long run	Higher price, smaller output; can earn abnormal (super-normal) profit in the long run

In short, perfect competition has many sellers of an identical product who are price takers with free entry, while a monopoly has a single price-making seller of a unique product protected by barriers to entry.

Read lesson note on Factors Of Production And Their Theories (JAMB)

Read lesson note on Market Structure (JAMB)

Answer Details

A perfect (perfectly competitive) market and a monopolistic (imperfectly competitive) market differ on several like features:

Feature	Perfect market	Monopolistic market
Number of sellers	Very many sellers, each too small to affect price	One seller (pure monopoly) or few, so the seller has market power
Nature of product	Homogeneous (identical) products	Unique product with no close substitute
Price control	Firm is a price taker; price set by market demand and supply	Firm is a price maker/setter; can influence price
Entry and exit	Free entry and exit into the industry	Barriers to entry (patents, control of raw materials, large capital, law)
Knowledge	Perfect knowledge of market by buyers and sellers	Imperfect knowledge of the market
Demand curve facing the firm	Perfectly elastic (horizontal) at the ruling price	Downward sloping demand curve
Price and output	Lower price, larger output; normal profit in the long run	Higher price, smaller output; can earn abnormal (super-normal) profit in the long run

Read lesson note on Factors Of Production And Their Theories (JAMB)

Read lesson note on Market Structure (JAMB)

Factors Of Production And Their Theories

Market Structure

View Answer

Distinguish between a perfect market and a monopolistic market.

Related Questions

Download The App On Google Playstore