Explain why a wheat grower is not able to dictate price to the wheat market?.
What is a market? A market co-ordinates the buying and selling of goods and services. Every transaction takes place in a market of some sort and must include the dimensions of time, space, and product. For our purposes, we will concentrate on the selling aspect of a market.
There are four market structures to consider when answering our question.
Monopoly Oligopoly Monopolistic Competition Perfect Competition.
Product Type Unique Identical/ Different Different Identical/ Homogenous.
Nature of Competition None Price/ Non-Price Non-Price Price.
Number of Firms One Few Large Many Small Many Small.
Barriers to Entry Very High High Low None.
Market Power* Considerable with Control Over Price Top Firms Enjoy Power However Rivalry Modifies Conduct Limited Price Discretion Due to Large Number of Substitute Goods Available Large Number of Small Firms with Same Product Means Firms Must Accept the Market Price.
Example Electricity Supplier Retail Banking Grocery Stores Agriculture.
*Market Power is the ability of a single firm to follow an advantageous course of action independent of other firms in the market. If a firm had market power, it would be able to the set the market price of a product. Since our wheat grower is one of many and they have no say in market price, they have little to no market power. Whereas a Monopoly has almost complete market power because they are able to set prices and modify products. The heavier the competition, the larger the number of firms: the weaker the market power.
We can conclude that a wheat grower is part of the perfect competition structure.
Perfect Competition- .
Characteristics Must Include:.
- Large number of small firms ensures that there is no market power.
- Large number of buyers means buyers have no buying power and cannot cut deals.
- The product offered must be identical to others in the market.