Economics Assignment: Exploring Market Structures and Demand Dynamics

This economics assignment explores key concepts such as market structures, perfect competition, and demand analysis. The assignment begins by defining rational self-interested consumers and profit-maximizing firms, which are crucial for understanding market dynamics. It also explores the chara...Read More

ECONOMICS
Question 1
Rational Self-interested consumers – This implies that the actions and decisions of the
consumers would be rational and would aim to maximise their underlying utility and would
purchase any good at the lowest available price.
Rational Profit Maximising Firms – Firms which are driven by the objective of maximising
profits and hence would decide to produce at a point where MR=MC.
Competitive markets with price taking behaviour – This implies that while the firms do
compete with each other but the price is decided by the industry and individual firms have to
charge the same.
The perfect competition has been designed to describe a basic market structure and thus
facilitate the description of other market structures which have different features to those
identified. Hence, it serves as a basic market structure. The alternatives exist in the form of
monopoly, oligopoly and other market structures.
Question 2
Assumptions that underlie a perfect competition market
 No entry or exit barrier
 No product differentiation
 Firms as price taker
 Many buyers and many sellers
The vegetable market can be assumed as an example of perfect competition. Clearly, in this
market there are many buyers and many suppliers or sellers. Also, the price of the vegetables
is essentially dependent on the industry level demand and supply and individual firms cannot
alter the same. Besides, considering the low capital involved, entry and exit barriers would
not exist. Finally, the sellers are essentially selling similar kind of vegetables with minimal
product differentiation.
Question 3
The Boxing Day sales tell us that the law of demand remains intact. This is because there is a
decrease in price and hence there is an increase in demand which leads to long queues. The

ECONOMICS
law of demand requires that certain conditions need to be met. Some of these assumptions
which remain intact even after the door is opened are highlighted below.
 Consumer income level does not change
 Consumer expectations about future prices do not change
 Consumer taste and preferences do not change
However, there may be a change in the related product which may impact the law of demand
for certain products.