Market Forms

Let’s take a look at the seven main types of market forms, the first being perfect competition. This is when you have many producers of essentially the same product. So, there’s competition between the companies as each tries to produce a better quality product at a lower price.

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Monopolistic competition is similar to perfect competition. It’s when you have many producers of a product, but each company only has a small market share of the products on the market.

Mini-test: Social Studies – Market Forms 

75. Which of the following definitions of market forms is incorrect?
A.  
B.  
C.  
D.  
E.  
F.  
76.
1. Monopolistic competition takes place when there are many producers of a product with each company having only a small share of the market
2. A natural monopoly takes place when it is most efficient for only one company to supply goods or services.
A.  
B.  
C.  
D.  

 

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The transcript is for your convenience.
So, there could be many companies producing widgets, but Company A only produces 5% of the widgets on the market. A monopoly is when there’s only one producer of a product. So, the producer can raise the price of the product very high because if the consumer wants to buy that product, they have to buy it from that one producer.

A monopsony is when there’s only one buyer of a product. An example of this is military equipment. There’s some military equipment that is produced that the US government is the only buyer of. So, in the case of a monopsony, the producer must make sure they are producing something the buyer wants, because if the buyer stops purchasing their product, they’re going to be out of business.

A national monopoly is when there’s only one producer of a product, like in a monopoly, but in this case, due to economies of scale, the efficiency of the product goes up with the more products that are produced.

An oligopoly and oligopsony are similar to a monopoly and a monopsony, just not as extreme. In an oligopoly, there are few producers of a product. So, instead of there just being one producer of a product in a monopoly, there’s a few. In oligopsony, there are several buyers of a product. So, all those buyers still have a lot of control over what kind of product the producers make.

So, that’s a brief look at the seven main types of market forms.

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