Exam paper---read the requirement I send you carefully Essay - 1

Exam paper---read the requirement I send you carefully - Essay Example In this sense, everyone produces and consumers determine the market price of a product (Johansson, 2004). Similarly, the determined price defines and determines what is to be produced and the consumers who can afford the products. Prices provide incentive to consumers and producers, albeit in different ways. That is, whereas high prices encourage producers to create more goods and services, high prices result in reduced consumption by consumers (Johansson, 2004). On the other hand, low prices discourage production but encourage consumers to consume more of the concerned goods and services. These high and low price incentive result in a balance between demand and supply, the forces of consumption and production respectively, resulting in equilibrium (Johansson, 2004). This demand and supply mechanism results in the efficient market outcomes in which consumer satisfaction in society is maximised and minimum cost. This paper explores the concept of a perfect market with regards to how i t responds to changes in consumer demands. In addition, the paper compares a perfect market and a market with which one is familiar. The paper first explores the various types of market structures within which these factors interact. Market Structures Among the conditions or factors that create and define market structure are buyers, sellers, and entry and exit barriers for sellers and buyers, size of the firm, its market share and competition (Sayantan, 2010). The table below summarises the various types of market structures that a business entity may operate in. From the tabel, it is evident that competition increases from monopoly, oligopoly, monopolistic competition and perfect competition. Structure Buyers Sellers Size of firm Product differentiation Market share Competition Perfect competition Many Many Relatively small Homogenous product Small Fierce Monopolistic competition Many Many Relatively small Substitutes with different branding Small Fierce Oligopoly Many Few Average Homogenous Average High Monopoly Many One Relatively large No substitutes Highest No competition Monopsorry One Many Relatively small Substitute good Average Imperfect competition In a monopoly, state-owned companies run the market and states bar the entry of other players whereas in oligopoly, consumers buy products of different sellers (Sayantan, 2010). On the other hand, in monopolistic competition, companies sell similar products but brand them differently. The different branding is indeed the catch for monopolistic competition. By knowing the market structure, business can measure its market share and the forces operating in the identified market not to mention the competitors and the type and range of products (Sayantan, 2010). This information is quite helpful for investment, having known the risks therein. A business can also develop its vision, values and mission after studying the target market. A perfect Market Responds to Consumer Demand Changes    In economic terms, for a market to be defined as perfect, it should have certain characteristics. These features are collectively referred to as perfect competition and they include absence of externalities, profit maximisation, equal access to production factors, absence of barriers to entry and exit, no participant with power or influence to set prices and perfect market information. The idea of a perfect market is based on the