Principles of Economics: Monopolistic Competition and Oligopoly; Housing Affordability in Australia

Running head: PRINCIPLES OF ECONOMICS
PRINCIPLES OF ECONOMICS
Name of the Student
Name of the University
Author’s Note

1PRINCIPLES OF ECONOMICS
Table of Contents
Introduction......................................................................................................................................2
Discussion........................................................................................................................................2
Question a....................................................................................................................................2
Question b..................................................................................................................................11
Conclusion.................................................................................................................................16
References......................................................................................................................................17

2PRINCIPLES OF ECONOMICS
Introduction
The present essay highlights on two parts, the first part focuses on differentiation between
two forms of market structure and the second part reflects on the issue of housing affordability in
Australia. Market structures signify to the degree as well as nature of competition for the
products and services in the market (Baldwin & Scott, 2013). There are four basic kinds of
market structures, which includes- perfect competition, oligopoly, monopolistic competition and
monopoly. The two forms of market structures that are differentiated in this first part are
monopolistic competition and oligopoly. The key characteristics and short run as well as long
run profits or losses of each of these market structures is discussed in this segment. This section
also focuses on the comparison between allocations of resources and efficiency in these two
market structures. The second section elucidates on the housing affordability issue in Australia.
Housing affordability basically relates to the relationship between income of households and
total expenditure on housing. Over the past few decades, housing affordability issue has been
continuously increasing in this nation. This housing affordability analysis in this nation is mainly
analyzed using various factors such as changes in income of consumer, prices of housing and so
on (Carraro, Katsoulacos & Xepapadeas, 2015). The measures or policies adopted by the
government of this nation to this issue of housing affordability are also outlined in this segment.
Furthermore, recommendations on this issue are also explained in this part.

3PRINCIPLES OF ECONOMICS
Discussion
Question a
Monopolistic competition refers to the kind of imperfect competition in which several
manufacturers sells products which are differentiated from each other that are close substitutes of
one another (Baumol & Blinder, 2015). All the firms existing in this form of market structure
have relatively low extent of market power and hence are all price makers. The key features of
this kind of market structure are given below:
Product differentiation- The enterprises operating under this form of market structure
manufacture the products that are slightly differentiated from one another. The commodities
being slightly differentiated remain close substitutes of one another (Dhingra & Morrow, 2012).
The products are differentiated based on four types, which involve- physical features, marketing
activities, distribution methods and human capital.
Huge number of sellers- Large number of enterprises operates under this form of market
structures and hence rigid competition exists between these enterprises. Each enterprise acts
independently and thereby has limited market share. In fact, these firms have less control over
the price prevailing in the market.
No barriers to entry and exit- The firms have no barriers in entering or exiting the industry. The
firms incurring huge loss can exit the industry at any time while new entity can enter this market
freely provided that it produces different variety and unique feature products.
Product pricing decision- Firms operating under this market structure is neither a price- maker
nor price- taker. Therefore, each entity has partial control over product price by manufacturing