Question

Define or explain the following concepts:

1. Market

2. Price discrimination

3. Monopolistic Competition

4. Selling cost

5. Equilibrium price

Answer 1

1. The market acts as a platform where buyers and sellers come into contact in order to exchange (buy and sell) goods and services. It refers to a situation where buyers and sellers meet. The market need not be a physical place. Nowadays, buyers and sellers meet over the internet and engage in trade.

2. Price discrimination implies charging different prices for the same product from different buyers at the same time. Such discrimination is generally enjoyed by a monopolist. In other words, he can sell the same product to different buyers at different prices at same or different time periods. Possibility of following Price discrimination is one of the important features of monopoly.

3. Monopolistic market structure is defined as the market structure where a large number of buyers and sellers engage in the exchange of differentiated products, i.e., products that are close substitutes of each other. Differentiated product is one of the unique features of the monopolistic market structure. For example, in the market of toilet soap, differentiated products are available under different brand names, which are close substitutes of each other but are not identical, such as Lux, Rexona, Cinthol, Lifebouy and Pears.

4. Selling cost refers to the total expenditure incurred by a monopolistically competitive firm in order to differentiate its product from the product of its competitors. For instance, advertisement expenses incurred by a firm are a part of the selling cost of the product.

5. Equilibrium price is the price at which the demand for a good is equal to its supply. This price is determined by the intersection of the demand and supply curves. Thus, it is a state where the demand and supply of goods balance.