Q.1. Define imperfect market.
Ans. Imperfect market refers to the market in which individual firms have some control over the output price.
Q.2. Does non-competitive market imply ‘no competition’?
Ans. Non-competitive market does not imply ‘no competition’. Firms compete with each other by adopting strategies like differentiating goods, advertising, improved quality, lower price, etc.
Q.3. Name any three forms of imperfect market structures.
Ans. Three forms of imperfect market structures are:
(ii) Monopolistic Competition
Q.4. Define monopoly.
Ans. Monopoly is a market structure in which the single firm or single producer produces the good or service for which there are no close substitutes available.
Q.5. When is a firm called price maker?
Ans. A firm is called price maker when it has a complete control over the prices. Monopoly firm is price maker.
Q.6. In which form of market are the firm and industry the same?
Ans. In monopoly, the firm and industry are the same.
Q.7. What is the effect on price when a monopoly firm tries to sell more?
Ans. The price will decrease when a monopoly firm tries to sell more. It is evident from the downward sloping demand curve.
Q.8. In which market form is there product differentiation?
Ans. There is a product differentiation in the monopolistic market form.
Q.9. Define monopolistic competition.
Ans. Monopolistic competition signifies a market situation in which there is a large number of firms whose products are close but not perfect substitutes.
Q.10. What can you say about the number of buyers and sellers under monopolistic competition?
Ans. There are large number of buyers and sellers under monopolistic competition. However, the number is less than that under perfect competition.
Q.11. What is the effect on price as a firm under monopolistic competition tries to sell more?
Ans. The demand curve under monopolistic competition is downward sloping. Thus, price will fall when : a monopolistic firm tries to sell more.
Q.12. Define oligopoly.
Ans. Oligopoly is a form of market in which there is a large number of buyers, but only a few big sellers of a commodity.
Q.13. In which market form are there a few sellers of a commodity?
Ans. In oligopoly there a few sellers of a commodity.
Q.14. State any one feature of oligopoly.
Ans. Few sellers.
Q.15. What is perfect oligopoly?
Ans. A perfect oligopoly is a form of market in which there is a few large firms and each firm produces homogeneous products.
Q.16. What is imperfect oligopoly?
Ans. It is the form of oligopoly where the firms produce differentiated products.
Q.17. What is market? Give its various forms.
Ans. Market refers to a medium through which buyers and sellers of a particular good or service come in contact with each other in order to facilitate an exchange.
Forms of Market:
Market has following forms:
(i) Perfect competition
(iii) Monopolistic competition
Q.18. Explain different forms of market.Also, state their basis of distribution.
Ans. Following are the different forms of market:
(i) Perfect Competition: Perfect competition is a market situation in which a large number of sellers sell homogeneous product with free entry and exit conditions. The price of the product under perfect competition is determined in the industry by the market forces of demand and supply. An individual firm is merely a price taker and not a price maker.
(ii) Monopoly: Monopoly is a market structure in which the single firm or single producer produces the good or service for which there are no close substitutes available. Under monopoly, there are significant barriers to entry, which prevent other firms to enter the market to compete for profits.
(iii) Monopolistic Competition: Monopolistic competition is a market structure in which a large number of firms produce similar but not identical goods. Firms under monopolistic competition exercise some market power by producing and selling differentiated goods.
Following are the basis of distribution of different forms of market:
(i) Number of buyers and sellers in the market
(ii) Nature of commodity
(iii) Degree of price control
Q.19. State three main features of a monopoly market. Describe any one.
Ans. The three main features of a monopoly are:
(i) A single seller
(ii) No close substitutes of the product
(iii) Monopoly firm is a price marker
Single Seller: In monopoly market structure, there is a single firm that produces the good or service for which there are no close substitutes. A firm is the entire industry. The market demand curve is the curve facing the firm and market supply is the amount that the firm decides to produce. Thus, monopoly firm has a complete control over the prices.
Q.20. Give causes of position of monopoly.
Ans. Monopoly market structure is caused because of the following factors:
(i) Government Licensing Policy: Monopoly market is structured in any area or industry by policy of providing licence for the production of any commodity or service for any company of government.
(ii) Acceptance of Patent Right: Many times government, for the search of a new product or new technology for the fulfilment of heavy investment, gives patent rights to a very big private company. Hence, the structure of monopoly market is produced.
(iii) Cartel: Many times, some firms do their activities collectively as monopolists to earn profits. Oil Exporter Country Union (OPEC) is such type of trade group.
Q.21. State any three main features of monopolistic competition. Describe any one.
Ans. Three main features of monopolistic competition are:
(i) Large number of sellers and buyers
(ii) Free entry and exit in the long run
(iii) Product differentiation
Product Differentiation: In monopolistic competition, each firm produces a brand or variety (of the same product) that is unique, i.e., different from what any other firm produces. The varieties produced are very close substitutes of one another. Products like toothpaste, soap and lipstick are prominent examples.
Q.22. Giving reason, distinguish between the behaviour of demand curves of firms under perfect competition and monopolistic competition.
Ans. The individual firm’s demand curve under perfect competition is a horizontal straight line or a perfectly elastic curve as the price of the homogeneous product is determined in the industry by the market forces of demand and supply. A firm can sell any level of output at a market-determined price. Consider part (a) of the diagram.
The individual firm’s demand curve under monopolistic competition is a downward sloping straight line. Since firms offer differentiated products, each firm can sell more only by lowering the price of its product. Moreover, the firm’s demand curve is relatively more elastic due to the availability of close substitutes. Consider part (b) of the diagram.
Q.23. Why is the demand curve more elastic under monopolistic competition than under monopoly? Explain.
Ans. Monopoly is a market structure in which the single firm produces the good or service for which there are no close substitutes available. Under monopoly, there are significant barriers to entry, which prevent other firms to enter the market to compete for profits. Monopoly firm, therefore, is a price maker having complete control over the price of its product. Since monopolist is the sole producer of a distinctive good, the demand curve (AR curve) is relatively less price elastic as a change in price will have very small impact on the quantity demanded of the good.
Monopolistic firms sell products which are close, but not perfect substitutes. Therefore, firms under monopolistic competition have partial control over prices. The demand curve (AR curve) is relatively more price elastic as a change in price will have large impact on the quantity demanded of the good due to the availability of close substitutes. Increase in price by one firm may decrease the demand for its product and increase the demand for rival’s product.
Q.24. Explain the implication of the feature ‘product differentiation’ under monopolistic competition.
Ans. Product differentiation implies that the products sold by different firms are similar but not identical. Their products differ in terms of colour, shape, quality, durability, etc. This gives an individual firm some monopoly power, that is, the power to influence the demand for its product by changing price. Buyers can easily differentiate between the products produced by different firms.
Q.25. Why there is a small number of firms in an oligopoly market? Explain.
Ans. The oligopoly is a market structure that is dominated by a small number of large firms, which execute barriers to entry in the form of patents, large capital, etc. Each firm is relatively large compared to the overall size of the market. These firms, therefore, have substantial market control.
Oligopoly firm actually can have a large number of firms, thereby approaching any monopolistically competitive industry. However, the distinct feature is that a few of the firms are relatively large compared to the overall market. For example, in automobile manufacturing, only 4 firms viz. Maruti, Hyundai, Ford and Tata have captured the largest share of production in the market.
Q.26. Why are the firms said to be interdependent in an oligopoly market? Explain.
Explain the features 'interdependence of firm' in an oligopoly.
Ans. Oligopoly firms are significantly affected by each other’s price and output decisions. If a firm increases the price of its product with the motive of earning higher profits, the other firms will not follow. Consequently, the leading firm will lose its customers to the firms, which charge lower price. On the contrary, if a firm lowers its price for maximising sales and earn higher profits, the other firm may also reduce their price in response. Consequently, the increase in total market sales is shared by all the firms in the market. The leading firm that initiated selling at a lower price may actually receive smaller share of the increase than expected.
Thus, the oligopoly firm has to take into consideration the actions and reactions of its rivals while taking its price and output decisions.
Q.27. Explain the implication of non-price competition in an oligopoly market.
Ans. Under oligopoly, there is a non-price competition. If the firms enter into price competition, called price war, it benefits only consumers, not the firms. Thus, the firms usually avoid price wars and try to attract consumers through different non-pricing strategies such as aggressive advertising, product bundling, branding, offering incentives and rebates, etc.
Q.28. Distinguish between cooperative and non-cooperative oligopoly.
Ans. Cooperative oligopoly is the one in which the firms co-operate with each other in determining the j price. They follow a common price policy and do not compete with each other. Non-cooperative oligopoly, on the other hand, is the one in which the firms act independently. They compete with each other and independently determine the price of their products.