Define Market Structures

 

Market structures describes how each firm or industry operates. The features of market structures include supply side of the market, number of firms in the markets, product offered in the market, entry and exit of firms, competition among firms, price of products and output produced.

 

Identify different types of market structures

• Perfect competition / Atomistic competition
• Monopoly
• Monopolistic competition
• Oligopoly

 

PERFECT COMPETITION / ATOMISTIC  COMPETITION

 

Perfect competition occurs in a market where there are many small firms and many buyers. Suppliers compete to supply homogeneous products.

 

Buyers choose the products they want from any of the sellers. Prices are set through the interaction of demand and supply.

 

MONOPOLY

 

• Monopoly exists when there is a single supplier and many buyers of a product in the market.
• Monopoly occurs when there is one firm that dominates the market. The firm makes the industry. The firm produces one range of product.

 

MONOPOLISTIC COMPETITION

 

Monopolistic competition is a market structure where there is a large number of small firms selling similar products in the market. It contains elements of monopoly and perfect competition. It is also known as a competitive market.

 

OLIGOPOLY MARKETS

 

Oligopoly markets are markets dominated by a small number of suppliers. They can be found in all countries and across a broad range of sectors.

 

 

 

RELEVANCE OF MARKET STRUCTURES

 

 

MONOPOLISCTIC MARKET

 

In a monopolistic market, the company maximizes profits. It can set prices higher than they would have been in a competitive market and earn higher profits. Due to

The absence of competition, the prices set by the monopoly will be the market price.

 

OLIGOPOLY MARKET

 

By controlling prices, oligopolies are able to raise their barriers to entry and protect themselves from new potential entrants into market. This is quite important , as new firms may offer much lower prices and thus jeopardize the longevity of colluding firm’s profit.

 

MONOPOLY MARKET

 

Without competition, monopolies can set prices and keep pricing consistent and reliable for consumers. Monopolies enjoy economies of scale, often able to produce mass quantities at lower cost per unit. Standing alone as a monopoly allows a company to securely invest in innovation without fear of competition.

 

PERFECT COMPETITION

 

Although perfect competition rarely occurs in real world markets, it provides a useful model for explaining

How supply and demand affect prices and behaviour in a market economy. Under perfect competition, there are many buyers and sellers, and prices reflect supply and demand.

 

 

WHICH MARKET STRUCTURE IS BENEFICIAL TO THE SOCIETY

 

PERFECT COMPETITION

 

Perfect competition is an ideal type of market structure where all producers and consumers have full and symmetric information and no transaction costs. Perfect competition has larger number of producers and consumers competing with one another in this kind of environment. Because there is perfect knowledge, there is no information failure and knowledge is shared evenly between all participants. There are no barriers to entry, so existing firms cannot derive any monopoly power. It keeps prices low and the quality and choice of goods and services high.

 

EFFECTS OF UNEMPLOYMENT

 

• Government incurs financial costs
• Spending power is reduced
• Reduced spending power of the employed
• Increased government borrowing
• Lower gross domestic product for the economy
• Unemployment causes recession
• Political instability

 

TO AN INDIVIDUAL

 

• Mental health problems
• employment gap
• Exploitation of labour
• Insecurity among employees

 

TO THE SOCIETY

• political issues
• Standard of living is reduced
• Unemployment causes crime and violence

 

METHODS OF CALCULATING DEPRICIATION

 

1. Straight line method: This is most commonly used method to calculate depreciation
2. Diminishing balance method: This method is also known as reducing balance method, written down value method or declining balance method.
3. Sum of year’s digits method
4. Double decline balance method

 

REASONS FOR PROVIDING FOR DEPRECIATION

 

– Depreciation occurs due to normal wear and tear , regular consumption, passage of time or obsolescence of technology. These are some of the major causes of depreciation.

– Depreciation allows for companies to recover the cost of an asset when it was purchased. The process allows for companies to cover the total cost of an asset over its lifespan instead of immediately recover the purchase cost. This allows companies to replace future assets using the appropriate amount of revenue.

 

ADVANTAGES OF USING STRAIGHT LINE METHOD

 

– It is very simple,  easy to understand and apply.

–  Asset can be depreciated up to the net scrap value or zero value

– Every year, the same amount is charged as depreciation in the profit and loss accounts.

 

 

DISADVANTAGES OF USING THE STRAIGHT LINE METHOD

 

– It ignores the actual use of the asset.

– It does not consider the loss of interests received for the amount invested in the asset.

– It does not take into consideration that the depreciation on the asset will be more as it becomes old.

 

ADVANTAGES OF USING REDUCING BALANCE METHOD

 

– Greater accuracy in repair costs. The higher depreciation expense in the initial years balances the lower repair costs of assets.

– Lower taxable income in the early years of an asset’s useful life

 

 

DISADVANTAGES OF USING REDUCING BALANCE METHOD

 

– This method charges heavy amount of depreciation in earlier years and it cannot reduce the book value of a fixed asset to zero if it is desired.

– It requires high rate of depreciation on fixed assets otherwise it will take a long time to write the asset down to its residual value