Chapter 4: The Market Forces of Demand and Supply
Market Structure: Refers to the way in which a market is organized.
Economist focus on the following
characteristics of a market:
(1) the number of buyers and sellers – this gives information on market power.
(2) The type of product produced by suppliers – is the product homogeneous (i.e. identical in every single way
such as corn from Farmer Jane or Farmer Miguel) or differentiated (similar but not identical, such as the
various brands of soda or toothpaste)
(3) Entry/Exit barriers — is it relatively costless to enter or exit a market? For example, if you produce
airplanes, then the startup cost is likely to be very high but if you are a hotdog vendor, the startup cost is
likely to be very low.
The text identifies the two extremes in market structure: perfect Competition and Monopoly. In between you
have Monopolistic Competition and Oligopoly.
The table below summarizes the features of the markets.
Number of buyers
Many buyers and
many sellers so that
no one agent has
Many sellers but seller
has some market power
because each seller is
selling a unique product.
Few dominant sellers
who have market
Type of product:
There is only
entry and exit
Low entry/exit barriers
such as corn, wheat,
barley sold in world
in green flats often
used as an example)
Soda, Toothpaste, Jams,
Jeans, Designer Coffee
This is probably the
most common market
structure in the US.
think of the different
brands of products in a
(few big names),
Demand and Quantity Demanded; Supply and Quantity Supplied
I cannot emphasize enough the importance of understanding the distinction between the terms demand and
quantity demanded. In layperson speak, we tend to say, price has increase and demand has fallen. In fact, news
articles are full of such phrases. But in economics, that phrase is incorrect and strictly speaking, in
mathermatically, it is also incorrect, given the demand curve and the variables on the axes.
Please read the
workbook, pg. 19. The same applies to supply and quantity supplied (workbook, pg. 20)