Read the document I send you carefully Essay Example | Topics and Well Written Essays - 1500 words

Read the document I send you carefully - Essay Example With every market structure, however, comes advantages and disadvantages of adopting that particular choice. There are mainly four types of market structures with â€Å"perfect competition†on one extreme and â€Å"monopoly†on the other (Baumol, 1961, p.142. Furthermore, â€Å"monopolistic competition†and â€Å"oligopoly† are those salient structures that are counted asthe moderate ones. In this paper, we will be focusing primarily on the Perfect markets. It will incorporate an analysis ontheir relation to consumer demand and the comparison to any other market structure in the economy. PERFECT COMPETITION AND MARKET DEMAND Perfect Market: Perfect competition is â€Å"a very large number of firms producing a standardized product.† (McConnel&Brue, 2004) This means that a perfect market is that structure which entails numerous extents of â€Å"buyers and sellers† for selling the same kinds of product. Besides this, there are several other noticea ble characteristics of a perfect market that are being listed below: In competition oriented perfect market, there are groups of buyers and sellers who are involved. ... Lastly, there is perfect information about prices and technology among both the sellers and buyers. (Besanko&Brauetigam, 2010, p.330) The Perfect Market and the Demand Curve: The demand curve of a perfect market is perfectly elastic which means that it is a horizontal line. â€Å"The price elasticity of demand (PED) for a good is a measure of the degree of responsiveness of the quantity demanded to a change in the price, ceteris paribus.† (Quek, 2011, p.2). It happens so because of the fact that the presence of small firms in the market makes it difficult for them to influence the pricing fluctuations of the goods and services that they offer. This leads to an inflexible proposition of prices of products to the consumers and thus, a perfectly elastic demand curve is achieved in this context. The figure below illustrates the demand curve: Figure 1: Chart showing perfectly elastic demand in a perfect market (Source: Google Images) Quek propagates thatâ€Å"demand curve in a per fectly competitive firm is also its marginal revenue curve† (2011, p.2). â€Å"Marginal revenue†can be understood as the revenue received by selling one extra unit of production. The demand curve and marginal revenue curve are equivalent in a perfect market competition since the price of goods and services are preciselythe same. The demand curve is identical to the average revenue as well in a perfect market because each product is sold at the same price i.e. the average of the total production. An increase in the price of products in a perfect market leads to the quantity demanded of that product to rise to infinity while a decrease in price leads to the quantity demanded of the product to fall to zero. This is also