3- Chapter Microeconomics chapter three.pptx

ME

1. Prepared By: Waheedullah Hemat Year: 2025 Intermediate Microeconomics

2. Chapter 3 Market Structure

3. The objectives of the Chapter The aim of this chapter is to undertake a thorough analysis of the market from an economic standpoint. This involves delving into the market structure and examining the decision-making authority of firms within it, along with exploring the objectives pursued by firms in maximizing their profits. By studying this chapter, readers will gain insights into various aspects of market. The meaning of the market varies across disciplines and perspectives. Understanding the structure of markets and the decision-making authority. Understanding the objectives pursued by business firms which entails gaining insight into the overarching goals and motivations that drive their actions and decisions in the marketplace. Knowing maximizing profits which is fundamental objective pursued by business firms. To know other objectives pursued by business firms beyond profit maximization including social, human, national and global objectives of business firms.

4. Meaning of Market The term "market" traces its origins back to the Latin word ' maracatus '. It denotes a place where a variety of goods are exchanged at fixed retail prices. Market refers to a place where buyers and sellers can come in contact with each other either directly or indirectly. In economics, the market is a comprehensive term and there is no particular place where the buyers and sellers are physically present. Marketing, a related concept, involves the activities undertaken by participants in a market environment.

5. Continue… In the realm of economics, marketing represents a strategy aimed at enhancing the sales of a product within a specified market. However, the advent of the internet has substantially transformed the essence of marketing. Nowadays, marketing is primarily associated with digital marketing. Advertisement and research stand as the foundation elements of marketing. Different definitions have been given by different economists Professor Coornot he understand by the term  market , not any particular marketplace in which things are brought and sold but the whole of any region in which buyers and sellers are in such free contact with one another that the prices of the same goods tend to equality easily and quickly.

6. Continue… According to Samuelson and Nordhaus (1995), they define a market as "a system in which buyers and sellers, which can include individuals, companies, factories, dealers, and agents, engage with each other to establish the price and facilitate the exchange of goods or services. The buyers represent the demand side, while the sellers represent the supply side of the market."

7. Continue… Depending on the context, the term "market" can assume various meanings. Economic Context: In economics, a market refers to the arrangement that allows buyers and sellers to exchange goods, services, or resources. This exchange can occur in physical locations (like a farmers' market) or virtually (such as an online marketplace). Financial Context: In finance, the term market typically refers to the buying and selling of financial instruments such as stocks, bonds, currencies, and commodities. Examples include the stock market, bond market, foreign exchange market (Forex), and commodity market. Target Audience: In marketing, a market refers to the group of consumers who share a common need or want that can potentially be satisfied through the exchange of goods or services. Understanding the market involves analysing demographics, behaviour, preferences, and purchasing power.

8. Continue… Competition : In business, a market can refer to the competitive landscape within a particular industry or sector. This includes both the existing competitors and potential new players, as well as factors like market share, pricing strategies, and barriers to entry. Supply and Demand : In microeconomics, a market is the interaction between buyers and sellers that determines the price and quantity of a good or service exchanged. This interaction is governed by the forces of supply (the amount of a product that producers are willing to sell) and demand (the amount of a product that consumers are willing to buy at a given price).

9. Continue… The following are some conceptual landscapes of the market system. Buyers and Sellers: Markets include two fundamental mechanisms: the demand side, comprising of buyers, and the supply side, comprised of sellers. Buyers can be either individuals or entities, such as businesses or organizations and specific goods or services to gain. In summary, sellers are the participants who provide these goods or services, making them available for gaining by buyers within the market. Goods and Services: Markets facilitate the exchange of either tangible goods such as cars, clothing, computers, notebooks etc. or intangible services such as healthcare, consulting, teaching etc ..

10. Continue… Price Mechanism: The interaction of supply and demand is the dynamic force behind price determination in markets. When the level of demand exceeds the available supply, it typically leads to an increase in prices. Inversely, in situations where the supply exceeds the level of demand, prices tend to decrease. Competition level in the Market: Market classification depends on the level of competition, and the market structures that reveal different levels of competition and market inspiration. These market structures, namely perfect competition, monopolistic competition, oligopoly, and monopoly, include a range of competitive dynamics and degrees of market control.

11. Continue… Demand and Supply: The contact between the quantity of a good or service that buyers are keen to purchase and the quantity that sellers are ready to offer plays a crucial role in the dynamics of a market. Any modifications in either the demand or supply can result in adjustments to both the price and the overall quantity traded in the market. Market Equilibrium: Market equilibrium represents the condition wherein the quantity of goods or services supplied equals the quantity demanded in the market. In this state of equilibrium, there exists a balance such that neither prices nor quantities have a characteristic tendency to experience alterations or fluctuations.

12. Continue… Market Failures: These situations happen when a market is unable to professionally disperse resources. externalities, public goods, and natural monopolies are some of the causes of such inefficiencies. Sometimes the government sanctions policies that have an impact on the market, resulting in resource allocation inequities. Furthermore, natural monopolies, like as water utilities, exist when a single organization can provide an item or service more efficiently than several competing firms, potentially resulting in poor resource allocation. Market Segmentation: This strategy involves segmenting a market into separate groups according to factors such as demographic characters, consumer preferences, or purchasing behaviors. This segmentation approach enables businesses to identify particular customer segments and offer them customized products and services that provide to their unique needs and preferences.

13. Continue… Market Expansion and Contraction: Markets have the capacity to either expand, signifying growth, or decrement, indicating a reduction in size, as a result of various influences such as technological advancements, shifts in consumer tastes, fluctuations in economic conditions, and other related factors. These dynamic market changes reflect the continuous evolution of industries and business environments. technological advancements, for instance, can open up new avenues for market expansion by creating innovative products, services, and business models. Equally, changes in consumer preferences can lead to market contraction for certain products or industries as consumer demand shifts. Economic conditions also play a significant role, as periods of economic growth can fuel market expansion, while economic downturns may cause market contractions.

14. Types of Markets Markets come in different forms due to several factors, such as the nature of goods or services offered their geographical presence, the time they operate, and their scale. Additionally, elements like the composition of the customer base, market size, legality, and various other considerations also play essential roles. Apart from the established physical and virtual markets, there exist various other types of markets where participants organize to conduct their transactions.

15. Types of Markets

16. Continue… Perfect Competition Market: There are several buyers and sellers trading equal products in such a perfect market arrangement, and no single company has significant market power. Prices are set by supply and demand, and enterprises can enter and leave freely. Monopoly Market: When a single seller or firm controls a market and there are no close substitutes for their product is called monopoly, the monopolist has incredible pricing control and can set prices to maximize profits. Oligopoly Market: An oligopoly is a market arrangement found in economies where a few firms hold power. In this setup, these firms exercise substantial influence, but none can entirely dominate others. The concentration ratio assesses the market share of the leading companies. While there's no exact limit to the number of firms, it must be small enough that one firm's actions affect the rest significantly.

17. Continue… Monopolistic Competition Market: This type of market features a large number of sellers offering distinguished products. Each firm has some degree of market power due to product differentiation, but there is still competition. Perfectly Competitive Labor Market: In this labor market, many individuals with the same skills and qualifications compete for the same job. Wages are established by the balance of labor supply and demand, and individual employees possess limited negotiation leverage. Additionally, it can be described as a situation where there are numerous buyers and sellers, and neither has the capacity to impact the market wage in a perfectly competitive labor market.

18. Continue… Commodity Market: A commodity market is a marketplace for buying, selling, and trading raw materials or primary products. Commodities are frequently divided into two wide categories: hard and soft commodities. Hard commodities include natural resources that must be mined or extracted, such as gold, rubber, and oil, while soft commodities are agricultural products or livestock, such as cereal crops, wheat, coffee , oil, soybeans, and meat. Stock Market: Shares of openly traded companies are bought and sold on stock exchanges. Investors can purchase ownership holdings (shares) in these companies, and share values are governed by supply and demand.

19. Continue… Foreign Exchange Market (Forex): Currency is traded on the Forex market. It is a decentralized market in which players exchange one currency for another at supply and demand-determined exchange rates. Online Market: These are online marketplaces where buyers and sellers can make transactions. Amazon, eBay, and many peer-to-peer marketplaces are examples. Black Market: Black markets are unregulated or illegal markets where goods or services are traded outside of the legitimate legal system. They frequently involve illegal or forbidden substances.

20. Market structure Market structure denotes the economic environment in which a business operates, reflecting the competitiveness of the industry. Factors such as barriers to entry and the number of market participants are considered in assessing market structure. Moreover, the dynamics between companies and consumers influence pricing dynamics. For instance, a market structure fostering multiple participants provides consumers with diverse choices and maintains competitive pricing. Conversely, an industry dominated by a single company may lack competitiveness, necessitating government intervention to ensure fair pricing. In this chapter, we are conducting analysis of the four types of markets.

21. 1. Perfect Competition In a perfect competition market structure, numerous firms operate, each exercising minimal influence over the market. Barriers to entry are low, facilitating easy ingress for new players due to modest startup costs and abundant resources . In this scenario, all firms offer identical products at nearly identical prices, with price fluctuations being rare occurrences. Likewise, lowering prices may result in increased sales but insufficient profitability due to thin profit margins.

22. Continue… Perfect competition is a theoretical market structure characterized by a large number of small firms producing homogeneous (identical) products, perfect information, freedom of entry and exit, and no market power for individual firms

23. 2. Monopolistic Competition In a monopolistic competition market structure, there exist numerous sellers, facilitating easy entry into the industry. Combining elements of both monopoly and perfect competition, firms in this structure offer products that are similar but possess slight distinctions, granting them a degree of market power derived from product differentiation. Monopolistic competition is a market structure characterized by a large number of firms competing with each other, each offering differentiated products

24. Continue… Monopolistic competition sits between perfect competition and monopoly, combining elements of both

25. 3. Oligopoly In an oligopolistic market structure, a limited number of major sellers cater to a broad consumer base. Entry into this market proves challenging due to factors such as substantial start-up expenses and patent protections, though it remains comparatively more accessible than entry into a monopoly. Similar to both perfect competition and monopolistic competition, firms in an oligopoly may either sell identical or differentiated products. However, the distinguishing feature is that each firm possesses sufficient market influence for its decisions to impact competitors.

26. Continue… Here are some examples of an oligopoly such us Supermarkets Airlines, Petrol retail and the pharmaceutical industry 

27. 4. Monopoly In a monopolistic market structure, a single company dominates a sizable market, often due to formidable barriers to entry such as steep start-up costs, resource limitations, and patent protections. This solitary entity offers a unique product that cannot be obtained elsewhere, compelling consumers to patronize it exclusively for that particular product. With the ability to dictate prices that consumers must accept, the monopolistic company wields considerable influence over market dynamics. However, monopolies are frequently deemed illegal owing to their potential for exploiting customers through inflated pricing, given their sole provider status.

28. Continue… A monopoly is a market structure characterized by a single seller or producer controlling the entire supply of a particular product or service

29. The Objective of Business Firms While it's commonly believed that the primary objective of a business is profit maximization, this notion overlooks the multifaceted responsibilities that businesses hold within society. While profitability is crucial for sustainability, a successful business must also prioritize the interests of various stakeholders, including owners, employees, customers, communities, and society as a whole. In addition to earning profits, businesses must consider the welfare of their employees by ensuring fair wages and providing a conducive work environment. Customer satisfaction is equally essential for long-term success, as it fosters loyalty and repeat business. Moreover, businesses rely on the support and goodwill of the community, which underscores the importance of corporate social responsibility initiatives and ethical practices.

30. Continue… Furthermore, businesses operate within a broader societal context and should align their objectives with national and international goals. This entails contributing to economic development, environmental sustainability, and social progress.

31. 1. Economic Objectives Economic objectives of business refer to the objective of earning profit and also other objectives that are necessary to be pursued to achieve the profit objective, which includes : Profit Maximization Creation of Customers Consistent Innovations Optimal Utilization of Resources

32. 2. Social Objectives Social objectives within business refer to the goals aimed at benefiting society as a whole. Given that businesses operate within society and utilize its limited resources, there's an inherent expectation for them to contribute positively to societal well-being. It's crucial that business activities do not cause any harm or inconvenience to society, as any detrimental effects can lead to public backlash against the business. Production and Supply of Quality Goods and Services Implementing Equitable Trade Standards Contributing to the Overall Well-being of Society

33. 3. Human Objectives Human objectives within a business context pertain to goals focused on the welfare and fulfilment of expectations of employees, including those who may be disabled, handicapped, or deficient proper education and training. Financial Welfare of the Employees Social and Emotional Satisfaction of Employees Development of Human Resources Wellbeing of Socially and Economically Backward People

34. 4. National Objectives As integral contributors to the nation's prosperity, every business should prioritize aligning its objectives with the broader goals and aspirations of the country. These national goals may include providing employment opportunities, generating revenue for the government, achieving self-sufficiency in the production of goods and services, and promoting social justice. Generating Job Opportunities Advancement of Fairness and Equality in Society Production According to National Importance Contribute to the Revenue of the Country Self-sufficiency and Export Promotion

35. 5. Global Objectives Afghanistan has always maintained friendly regulations on business interactions with other nations, particularly regarding the import and export of goods and services. It has adopted more liberal economic policies and relaxed export-import regulations, and duties on imported goods have been significantly reduced. This shift has resulted in heightened competition within the market. Raise the Overall Quality of Life Diminish Inequalities Between Countries Provide Goods and Services that are Competitive on a Global Scale

36. Major Highlights The term "market" traces its origins back to the Latin word ' maracatus '. It denotes a place where a variety of goods are exchanged at fixed retail prices . Market structure refers to the organizational and other characteristics of a market. It describes how firms within an industry interact with each other and with consumers. There are several types of market structures such as perfect competition, monopolistic competition, oligopoly and monopoly. In a perfect competition market structure, numerous firms operate, each wielding minimal influence over the market. Monopolistic competition is a market structure characterized by a large number of firms competing against each other, each producing slightly differentiated products. This means that while products are similar, they are not perfect substitutes. Oligopoly is a market structure characterized by a small number of large firms dominating the market. In an oligopoly, each firm has a significant market share, and their actions can have a substantial impact on the market as a whole.

37. Continue… A monopoly is a market structure in which a single seller or producer controls the entire supply of a particular product or service, giving them significant market power and the ability to set prices. The objectives of business firms can vary depending on various factors such as the type of industry, market conditions, ownership structure, and management philosophy which is economic objectives, social objectives, human objectives, national objectives and global objectives. Economic objectives of business refer to the objective of earning profit and also other objectives that are necessary to be pursued to achieve the profit objective, which include, creation of customers, regular innovations and best possible use of available resources. Social objectives within business refer to the goals aimed at benefiting society as a whole. Given that businesses operate within society and utilize its limited resources. These social objectives encompass various aspects, including the production and distribution of high-quality goods and services, implementing equitable trade standards, and contributing to the overall well-being of society.

38. Continue… Human objectives within a business context pertain to goals focused on the welfare and fulfilment of expectations of employees, including those who may be disabled, handicapped, or lacking proper education and training. These objectives encompass various facets such as financial welfare of the employees, social and emotional satisfaction of employees, and wellbeing of socially and economically backward people. As integral contributors to the nation's prosperity, every business should prioritize aligning its objectives with the broader goals and aspirations of the country. These national goals may include providing employment opportunities, generating revenue for the government, achieving self-sufficiency in the production of goods and services, and promoting social justice. Globalization has transformed the world into a vast interconnected market. Products manufactured in one country are readily available in others. In response to this global competition, businesses have formulated specific objectives, known as global objectives, to navigate this evolving landscape.

39. Questions Explain the meaning of market in economic context, financial context and target audience? What constitutes market structure, and how many distinct types of markets are recognized? How many types of objectives do business firms typically pursue? What are the economic objectives of business firms? What are the social objectives of business firms? What are the human objectives of business firms? What are the national objectives of business firms? What are the global objectives of business firms?

40. Further Reading AHUJA, H. L. (2017). Advanced Economic Theory Microeconomic Analysis (Second Edition ed.). New Delhi : S Chand And Company Limited. Andolfatto , D. (2008). Macroeconomics Theory and Policy (Second Edition ed.). University Library of Munich, Germany . N. Gregory Mankiw, M. P. (2017). Microeconomics . Delhi: CENGAGE INDIA. Blaug , M. (2023, May 17). economics . Retrieved from Encyclopedia Britannica: https://www.britannica.com Dwivedi, D. N. (2016). Microeconomics Theory and Applications (Third Edition ed.). Delhi: Vikas Publishing House Pvt Ltd. Retrieved from www.vikaspublishing.com Jain, V. (n.d.). Fundamentals of Economics. Delhi: NEERAJ PUBLICATIONS. Retrieved from https://www.neerajbooks.com/ JHINGAN, M. (2016). Microeconomics (Eighth Edition ed.). Delhi: Vrinda Publications (P) LTD. Retrieved from www.vrindaindia.com LIPSEY, R., & CHRYSTAL, A. (2012). Economics (Twelfth Edition ed.). New York: Oxford University Press Inc. VERMA, K. (2013). Micro-Economic Theory (Third Edition ed.). Jalandhar Delhi: Vishal Publishing Co. Retrieved from www.vishalpubco.com

41. Thank You ?