what role does each market structure play in the economy
There are four basic types of market structures by traditional economic analysis: perfect competition, monopolistic competition, oligopoly and monopoly. A monopoly is a market structure in which a single supplier produces and sells a given product. [ If there is a single seller in a certain industry and there are not any close substitutes for the product, then the market structure is that of a
"pure monopoly". Sometimes, there are many sellers in an industry and/or there exist many close substitutes for the goods being produced, but nevertheless companies retain some market power. This is termed monopolistic competition, whereas by oligopoly the companies interact strategically.Oligopoly is a fairly common market organization. In the United States, both the steel and automobile industries (with about three large firms each) provide good examples of oligopolistic market structures.
The most important characteristic of an oligopolistic market structure is the interdependence of firms in the industry. The interdependence, actual or perceived, arises from the small number of firms in the industry. Unlike under monopolistic competition, if an oligopolistic firm changes its price or output, it has perceptible effects on the sales and profits of its competitors in the industry. Thus, an oligopolist always considers the reactions of its rivals in formulating its pricing or output decisions.The real world is rarely characterized by perfect competition, and in certain circumstances, the society has to tolerate a monopoly (e.g., a natural monopoly or a monopoly due to patent rights). Nevertheless, the idea of competition is very deeply ingrained in the society. So long as there is a reasonable degree of competition (as in the case of monopolistic competition or oligopoly), the society feels reasonably secure with respect to the working of its markets.
Macroeconomics is a social science that studies an economy at the aggregate (or nationwide) level. Macroeconomic theories study an overall economy and prescribe policy recommendations based on the study of the behavior of key macroeconomic variables. ]
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