COMPETATIVE MARKET

A competitive market is one where there are numerous producers that

compete with one another in hopes to provide goods and services we,
as consumers, want and need. In other words, not one single producer
can dictate the market. Also, like producers, not one consumer can
dictate the market either. This concept is also true where price and
quantity of goods are concerned. One producer and one consumer
can't decide the price of goods or decide the quantity that will be
produced.
A great example of competitive market is farming. There are thousands
of farmers and not one of them can influence the market or the price
based on how much they grow. All the farmer can do is grow the crop
and accept whatever the current price is for that product. They do not
get to determine the price they want to sell the crop for.

CHARACTERISTICS OF COMPETATIVE MARKET:

1. In economics a place is refer a market for a commodity or

commodities i.e., a wheat market, a tea market or a gold market
and so on.
2. In economics, market does not refer only to a fixed location. It
refers to the whole area or region of operation of demand and
supply
3. To create a market for a commodity what we need is only a group
of potential sellers and potential buyers. They must be present in
the market of course at different places.
 4. Buyers and sellers must have perfect knowledge of the market
regarding the demand of the customers, regarding their habits,
tastes, fashions etc.
5. One and only one price be in existence in the market which is
possible only through perfect competition and not otherwise.

MONOPOLISTIC COMPETITION
Monopolistic competition is a type of not perfectly competitive market.
A monopolistic competitive market is one with freedom of entry and
exit, but firms can differentiate their products. Therefore, they have an
inelastic demand curve and so they can set prices. However, because
there is freedom of entry, supernormal profits will encourage more
firms to enter the market leading to normal profits in the long term.

A monopolistic competitive industry has the following features:

 Many firms.
 Freedom of entry and exit.
 Firms produce differentiated products.
 Firms have price inelastic demand; they are price makers because
the good is highly differentiated
 Firms make normal profits in the long run but could make
supernormal profits in the short term
 Firms are allocatively and productively inefficient.

EXAMPLES OF MONOPOLISTIC COMPETITION:

 Restaurants – restaurants compete on quality of food as much as

price. Product differentiation is a key element of the business.
There are relatively low barriers to entry in setting up a new
restaurant.
  Hairdressers. A service which will give firms a reputation for the
quality of their hair-cutting.

LIMITATIONS OF THE MODEL OF MONOPOLISTIC COMPETITION

 Some firms will be better at brand differentiation and therefore,

in the real world, they will be able to make supernormal profit.
 New firms will not be seen as a close substitute.
 There is considerable overlap with oligopoly – except the model
of monopolistic competition assumes no barriers to entry. In the
real world, there are likely to be at least some barriers to entry

KEY DIFFERENCE WITH PERFECT COMPETITION

In Monopolistic competition, firms do produce differentiated products,

therefore, they are not price takers (perfectly elastic demand). They
have inelastic demand.