The Economic Market Shift

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The island of Tap is a small island. They have an agricultural economy made up of corn and beef. Throughout the nation’s history the island farmers have grown corn. That is until recently when a new company entered the corn industry. After time, the people of Tap being to notice a difference in price and begin to question why this occurred. Before one can understand the market structure shift that the people of Tap are experiencing it is crucial to understand the three basic forms of the market. They are the following: perfectly competitive, oligopoly, and monopoly.
A perfectly competitive industry has a large number of firms, producing similar products. Therefore, the demand for the good is very elastic. A good is elastic when quantity demanded is responsive to change in price. For example, if the price of the good is increased buy two perfect the demand for that product will drop significantly because there substitutes available at lower price. However, if the firm lowers their price by two percent they are not maximizing their potential profit. This scenario will stand true if all other variables remain constant, ceteris paribus. A perfectly competitive firm is a price taker- they have no market power. Meanwhile, a monopoly market structure is the complete opposite. It is a single firm with a dominate control over the market and not close substitutes. Therefore, it is a price setter and inelastic. Generally, monopolies produce less goods and charge a higher price for them with the intent to maximize their profits. The last type of firm is an oligopoly, “the market condition that exists when there are few sellers, as a result of which they can greatly influence price and other market factors” (“Oligopoly”). A k...

... middle of paper ... machinery. Farmers could not produce a large quantity by due to the lack of machinery and technology. However, when the industrial occurred in America barriers to entry for the agricultural industry appeared. Just like in Tap small firms were bought out by large companies with financial backing. Unlike, Tap in the word that we live in monopolies are not common, largely in part of legislation that makes them illegal, The Sherman Act. Instead the common industry is oligopolies which rely highly on modern technology. All in all, there is little to be done about the shift from perfectly competitive firms to oligopolies. The main benefit of competition is that is keeps prices low which will give consumers utility, and allow produces to continue to make a profit in the short run.

Works Cited

"Oligopoly.", n.d. Web. 20 Nov. 2013.

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