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SCALE OF PREFERENCE:-The concept of scale of preference is the base of indifference curve analysis.Now, we see what is meant by Scale of preference.

Suppose, a consumer is in a position to arrange the different combination oftwo goods say X & Y, in order to buy or consume it, then he have to arrange thecombination in ascending or descending order of preference. He could tell us thatthe satisfaction derived from the first combination is more than, equal to or lessthan from the second combination but not the exact difference (in number) insatisfaction derived from any two combinations.

Thus, every consumer arranges these combinations in order of preference.This conceptual arrangement of combination of goods set in order of level of

preference or importance is called the scale of preference.

INDIFFERENCE CURVE:-An Indifference curve is the locus of all those combination of any two goods whichgive the same level of satisfaction to the consumer. (i.e.) He will be indifferencebetween that combination and he does not matter if any combination he gets.

Indifference Schedule:-Combinations Goods (X) Goods (Y) Level of satisfactions

A 1 18 S

B 2 13 S

C 3 9 S

D 4 6 S

E 5 4 S

S = Same level of Satisfaction.In the above schedule there are 5 combinations of 2 goods (X) and (Y)

But all are achieved combinations of (X) and (Y). The consumer is indifferentbetween them. It can be explained in further detail as_

To get one more units of X the consumer prefer to give up 5 units or Y. Thegain in utility of one additional unit of X will exactly compensated the consumer bythe loss of 5 units of Y. Thus the total level of satisfaction from(1X + 18Y) is equal to (2X + 13Y).

Similarly, the total utility or the level of satisfaction from (2X + 13Y) is equalto (3X + 9Y) and so on. Since all these combinations gives the same level ofsatisfaction they are also known as Iso-utility combination.

Indifference schedule in Indifference curve as shown below:

In the above figure, X-axis represents product X and Y axis representsproduct Y. IC1 is the Indifference curve. All combinations of the goods X & Yrepresented by points A, B, C, D & E on the Indifferent curve will be equallypreferable to the consumer. As these goods gives him the same level of satisfactions.

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INDIFFERENCE MAP:

An indifference map is consists of a set of indifference curve drawntogether. It shows the scale of preference of consumer for different combinations ofany two goods.

In the indifferent Map given above, all the combination of two goods represented bythe curve IC1 will give the consumer the same level of satisfaction. But the level of

satisfaction will be less than those given by IC2 and IC3 etc.Higher and higher indifference curve represents higher & higher level of

satisfaction as compared to lower one.Therefore Indifference curve in a indifference map are labeled in an

ascending order such as IC0, IC1, IC2, IC3, IC10, IC100 ICn. Without actualmeasurement of utility.

ASSUMPTION OF INDIFFERENCE CURVE ANALYSIS.

1. A consumer is assumed to buy any two goods in combinations.2. A consumer can rank the alternative combinations and compare their level

of satisfaction, and he prefers a combination providing a higher level of

satisfaction.3. It is assumed that utility can be measured in ordinal numbers but not incardinal measurements.

4. Consumer is rational and his choices are transitive.5. The consumer behaviour is assumed to be constant, throughout the

analysis.6. Indifference curve analysis assumes diminishing marginal rate of

substitution.

Properties of Indifference Curve





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The indifference curves possess certain characteristics which are also called as

properties. The important properties are:1. Indifference curve must slopes downwards from left to right.2. Indifference curve must be convex to the origin.3. No two Indifference curves should intersect.

LET US SEE THE PROPERTIES ONE BY ONE





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Indifference curves slopes downwards from left to right indicating that as the

quantity of commodity X increases, the amount of commodity Y should fall in orderthat the level of satisfaction from every combination should remain the same.

In the above figure, where the Indifference curve (IC1) slopes downwardsfrom left to right, shows that as the consumer moves from point A to B on (IC1),consuming more of commodity X [(i.e.) from o-x1 to o-x2] and less of commodity Y[(i.e.) from o-y1 to o-y2], level of satisfaction remains the same.

Let us see weather, the indifference curve can slope upwardsfrom left to right or that it is horizontal or verticalas shown in the following figure.

In the upward sloping Indifference curve_When the consumer prefers (0 x1) quantity of commodity X he prefers (0 y1)quantity of commodity Y at the point A. When the consumer tends to prefer(0 x2) quantity of commodity X he prefers (0 y2) quantity of commodity Y at thepoint B.

From the diagram it is very clear that,

(0 x1) > (0 x2) & (0 y1) < (0 y2)Therefore, the satisfaction derived from the combination of goods X

and Y at point B is greater than the satisfaction derived from thecombination of goods X and Y at point A.

This is happening, because the consumer moves from A to B onIC1 consuming more of commodity X [ (i.e.) 0 x1 to 0 x2 ] and more ofcommodity Y [ (i.e.) from 0 y1 to 0 y2 ]

In the horizontal slopping of Indifferencecurve_





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Y1

O

When the consumer prefers (0 x1) quantity of commodity X as well as (0 x2) quantity of commodity X he prefers the same quantity of Y (i.e.) (0 y1).

From the diagram, it is very clear that,(0 x1) < (0 x2) & (0 y1) = (0 y1)

Therefore, the satisfaction derived from the combination of goods X and Y atpoint B is greater than the satisfaction derived from the combination of goods X andY at point A.

This is because the consumer moves from A and B on (IC1) Consumingmore of commodity X (i.e. 0 x1 to 0 x2) and same level of commodity Y (i.e.)from (0 y1) to (0 y1).

In the vertical sloping Indifference curve_

When the consumer prefers (0 y1) quantity of commodity Y as well as(0 y2) quantity of commodity Y he prefers the same quantity of commodity X (i.e.)(0 x1)

From the diagram, it is very clear that,(0 x1) = (0 x1) & (0 y1) < (0 y2)

Therefore, the satisfaction derived from the combination of goods X and Y atpoint B is greater than the satisfaction derived from the combination of goods X andY at point A.





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Convexity implies that the consumer is willing to give up less of good Y toobtain a little more of good X. This means, a diminishing slope ( y/ x) of the

indifference curve.A rational consumer gives less significance to an extra unit of a commoditywith a large stock and more significance to an unit of a commodity with a smallerstock. As the consumer moves down the indifference curve, quantity or X becomeslarger and that of Y becomes smaller. In order to be at the same level of satisfaction,the consumer will sacrifice less and less of Y in exchange of X. So MRS of X for Ywill diminish as the consumer gets more and more of X. Only then the subsequentcombinations will give the consumer an equal level of satisfaction. Henceindifference curves are convex to the origin.

No two Indifference curveintercept witheach other.

In order to prove that two indifference curve do not intercept with each other.Let us draw two Indifference curve (IC1 &IC2) intercepting with each other at pointA, As shown in the diagram.

Each indifferent curve represents a particular level of satisfaction tothe consumer, which is different from other Indifference Curve representingdifferent level of satisfaction. If two indifference curves intercepts (as shown in theabove diagram) it will corresponding to B and C, managed to equal at some otherpoint A. But is logically meaning less and unacceptable proportion.





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Consumers equilibrium: - A consumer is said to be

equilibrium when he gets maximum level of satisfaction by spending his limitedincome on purchase of any two goods. A rational consumer will therefore attemptto reach the highest possible indifferent curve and try to obtain maximum level ofsatisfaction by spending his limited income.

The conditions or assumption of Consumer Equilibrium are _Consumer equilibrium can be explained by making the following

assumption:-

1. A consumer has a scale or preference for different combination of any twogoods and it remain constant throughout the analysis.

2. A consumer has a fixed amount of income to be spend on any two goods andhe is spent his entire income on the purchase of the two goods and does notsave any part of his income.

3. Prices per unit of two goods X and Y are given and remain constantthroughout the analysis.

4. The two goods are perfectly divisible and substitutable to some extent.5. All the units of goods are homogeneous.6. Consumer is a rational person & attempts to get maximum level of

satisfaction.

Budget line/Price line: Price line represents differentcombination of any two goods X and Y which the consumer can actually purchase.Assuming the fixed income of the consumer and price per unit of X and Y is given.

Explain how the consumer is reaches his equilibrium combination on hisindifference map. OR explain consumer equilibrium under Indifference curveanalysis.

In order to explain consumer equilibriumunder Indifference curve analysis, we have todraw the Indifference Map and the Budget/priceline together as shown in the figure below.





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A rational consumer will try to reach the highest possible Indifference curvegiven his income and price per unit of the two goods X and y.

The consumer will not be equilibrium below the Price line because he will notbe spending his entire income and he will not get maximum level of satisfaction. Onthe other hand all the combination of X and Y represented by the IC2 and IC3 areruled out because his income is not sufficient to reach any point on the IC2 and IC3.

The consumer equilibrium should be some where n the Budget line neitherbelow nor above. E is the equilibrium point. The consumer will not be equilibriumat any point on the Budget line above the point E because MRSxy is greater.Similarly, he will not be equilibrium at any point below Equilibrium point E on theBudget line Because MRSxy is lesser.

Price Elasticity Demand or concepts ofElasticity of Demand

The concept of Price elasticity of demand is introduced byAlfredMarshall.According to Marshall, Price elasticity of demand is theratio of percentage change in quantity demanded to the percentagechange in price.This is stated in the form of a formula as,

Ep = Percentage change in quantity demandPercentage change in price.

Ep =

Ep =

Wher e: Ep = Price elasticity of demand.= Change in demand.





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= Change in price.Income Elasticity of Demand.

Income Elasticity of Demand refers to the Degree of responsiveness of demand for acommodity due to a change in consumers income. The formula for measuring income elasticityof demand is as follows.

Ey = Percentage change in the quantity demandedPercentage change in income.

Ey =

Ey =

Wher e: - Ey = Income elasticity of demand.Q = original demand

Y = original income= Change in Demand= Change in Income

Practical uses of concept of elasticity ofDemand.

1. Useful to Businessman :- It guides the businessman in fixing the price of hisgoods. He can raise the price of those goods having inelastic demand andearn more profit. It is very helpful to monopolists to maximise their profit.

2. Government Taxation Policy: While imposing taxes on commodities, the

Finance Minister has to keep in mind the elasticity of demand for acommodity. If he levies taxes on goods which have elastic demand, it is notprofitable for Government.

3. Price determination of joint products : In case of joint products like cottonand cotton seeds, wool and mutton, etc. it is not possible to calculate thecost of production separately as they are supplied together. Therefore, theprice of each product depends on the elasticity of demand.

4. Determination of wages : Industrial workers get higher wages, if the productproduced by them has inelastic demand. Because the producer is able to payhigher wages by fixing higher price for the product which ha inelasticdemand. If the demand is elastic, trade unions cannot get their wagesraised.

5. Pricing under monopoly :-Under discriminating monopoly the monopolistcharges different prices in different markets on the basis of elasticity of

demand.





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Distinguish between Market economy and command

economy.

Market economy (Capitalism) Planned economy (Socialism)

1. Definition2. The means of production are ownedby the private enterprises. The decisionsof production, distribution, exchangeare controlled by the privateentrepreneurs.3. All economic activities are guided byself interest and profit motive.

4. The decisions of what to produce,how to produce & where to producewere mainly in the hands of Privateenterprises.5. Consumer is the king in a marketeconomy. He can choose whatever helikes and rejects what he doesnt like.The producers are free to investwherever they desire.6. Profit motive and private propertyare the essential features. It leads togrowth of monopolies and high degreeof inequality.

1. Definition2. The means of production are ownedby the state. All the decisions regardingproduction, distribution and exchangeare taken by the state.

3. All activities are undertaken with aview to improve social welfare and todeliver social justice.4. The decisions of what to produce,how to produce & where to producewere mainly in the hands of States.

5. Here neither the consumer nor theproducer is the king. They have nochoice but to accept the decisions takenby the planners.

6. The major objective of plannedeconomy is to provide social justice andreduce in equality. It makes all possibleattempts to eliminate monopoly.

Market economy (Capitalism) Mixed economy(Capital + Social)

1. Definition2. The means of production are ownedby the private enterprises. The decisionsof production, distribution, exchangeare controlled by the privateentrepreneurs.

3. All economic activities are guided byself interest and profit motive.

4. The decisions of what to produce,how to produce & where to producewere mainly in the hands of Privateenterprises.

5. Consumer is the king in a marketeconomy. He can choose whatever helikes and rejects what he doesnt like.The producers are free to investwherever they desire.6. Profit motive and private propertyare the essential features. It leads togrowth of monopolies and high degree

1. Definition2. The means of production are ownedby the private as well as Publicenterprises. The decisions ofproduction, distribution, exchange arecontrolled by boththe Private as well as Publicentrepreneurs.3. All economic activities are guided bynot only self interest and profit motivebut also service oriented.4. The decisions of what to produce,how to produce & where to producewere mainly there in the hands ofgovernment, which guides both Publicenterprises as well as Privateenterprises.5. Here both the consumer and theproducer is the king. But, they have tofollow the decisions (law) laid down bythe government bodies from time totime.6. Profit motive and private propertyalso Service motive and Public propertyare the essential features.





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of inequality.





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Scope and Meaning of Economics:-The subject of economics is concerned with the satisfaction of human

materialistic wants. It also deals with economic problems that arise out of making achoice. These are choice of goods and choice of technique. The problem of choice ofgoods arises because of _ 1. Multiplicity of wants. 2. Wants can be arranged in theorder of their importance. 3. Resources are scarce.

Economic problems relating to choice of technique arise because factor ofproduction have alternative uses. The root cause of an economic problem is thescarcity of resources and the study of economics is concerned with economizingresources. How to make best uses of resources. Thus according to Somuelson. Thesubject of economics is concerned with a following fundamental problem:-

1.What to produce :- This is the major problem in front of the nation. Acountry has to decide the type of product and the amount of the product tobe produced by utilizing the limited resources as its disposal. Here the firmneed to decide between_

a. Choice between Consumption goods and Capital Goods.b. Choice between Civil goods and War goods.

c. Choice between Mass goods and Luxury goods.d. Choice between Private goods and Public goods.

2. How to produce :- How to produce is essentially a problem of choice oftechnique. If the country is advanced in its technological knowledge then itmay produce more production with less fact0r of production and vice versa.

3. For whom to produce : - This is a problem related to distribution of nationalincome among different factors. In other words it is the problem of howmuch share each factor should be provided in return of their services in the

process of production.According to Hipsey besides the above mentioned fundamental problems

other important problems are._1. How to achieve full employment.2. How to achieve faster growth.3. How to achieve efficiency.4. Productive efficiency.5. Distributive efficiency.Conclusion: Thus, Scarcity of resources is the root cause of all economic

problems. The subject economics is concerned with economizing resources.

Features of Free Market

Economy/Capitalism.Free market Economy:- It a system of market mechanism refers to an economicsystem in which all the means of production are privately owned. All economicactivities like production, distribution, consumption are very much influenced bythe decision taken by the Private entrepreneurs.

1. Free enterprise : A market economy is a free enterprise economy where anindividual enjoys maximum freedom in economic matters.





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2. Economic freedom : The consumers are allowed free to spend their income

in whatever manner they decide. The producer is also allowed free to choosethe products they produce and invest their capital whatever way they like.But it should not be used opposed to public policy.

3. The role of Government : As the economy is based on free enterprise, thegovernment does not interfere in economic activities.

4. Profit motive : Profit motive is the central feature of capitalism. It acts as anincentive and motivate the entrepreneurs to come forward and bear risksand uncertainties.

5. Price mechanism : Since government interference is almost not there, theentrepreneurs had to take decision of _

a. What to produceb. How to producec. For whom to produce

6. Competition :- A market economy is characterized by competition.Competition among entrepreneurs improves the efficiency in theproduction of goods and services.

Features of Command economy/Socialism/Planned economyThere is no specific definition of Command economy. However it can be explainedas A planned economy is one which is run by a single central planning authorityChina is an example of a planned economy.

1. Means of production: Means of production will be owned by the society as a

whole. They are managed by the state for the benefit of the society. Undersocialism, all labourers are employed by the state. So there is no scope forexploitation of labour.

2. No private property: Means of production cannot be owned by privateindividuals or associations or individuals.

3. Planning:-The state will decide what to produce where to produce and howto produce. All the production like agriculture, industry, irrigation andtransport will be developed systematically according to a well preparedplan.

4. Service motive: Since the production activities are practiced by the state onbehalf of the people. So the main aim is to provide service to the people.

5. No Competition: Since all the production activities are taken down by theState there is no competition among the industries.

6. The role of Government: It is fully controlled by the Government.

Features of Mixed Economy:Mixed Economy: It is a system in which both capitalist economy andcommand economy exist. It means both private and public sectors co exist and co ordinate. It covers the features of both Capitalism and Socialism.





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1. Co-existence of Private and public sectors: Both public and private sectors

exist in a mixed economy. Generally, the public sectors enter the areas ofinfrastructure and capital goods industries which require huge capital andlong waiting. The private sectors enters those areas which are left free bythe public sector and particularly the consumer goods industries. There isalso joint sector in which the state joins hands with the private sectors.

2. Operation of Market Mechanism3. Operation of Government control.4. Economic freedom5. Government regulations6. Planned economy





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2. Pure competition is much simplerand less exclusive concept than perfectcompetition.3. It is possible to come across purecompetition in fields like agriculture.4. American economists attach greaterimportance to pure competition.

g. No government restrictions.

2. Perfect competition is more exclusiveconcept involving many assumptions.

3. It is difficult to come across perfectcompetition in real life.4. English economists generallyemphasis perfect competition.

Production cost Selling cost

1. Production cost refers to all theexpenses met by the producer in orderto produce and shift it to theconsumer.

2. Production cost results in additionalproduction which creates additionalutility.

3. Production cost helps to expandsupply.4. Production cost is met by allcommodities which are produced andsold.5. Production cost is universal and it isfaced by all markets including perfectcompetitions.

6. Production cost influences theposition and shape of supply curve

1. Selling cost refers to only that costwhich is incurred to secure demand.For. eg. Expenses on demand,advertisement, publishing, window,display etc.2. Selling cost results in creation ofdemand. Further it does not helps tosatisfy existing demand.

3. Selling cost promotes demandthereby sales.4. Selling cost is incurred by only thosewho produce and sell differentiatedproducts.5. Selling cost is a peculiar feature ofmonopolistic competition only.

6. Selling cost influence the position andshape of demand curve.

Micro economics Macro economics

1. The concept of Micro economicsdeals with the study of individual unitslike consumers, firms etc.2. It is the traditional economicapproach followed by the neo-classicaleconomists.3. Micro economics analysis thebehaviour of micro variables such asindividual demand, individual supply,

price of a particular product, wages fora particular worker etc.4. Micro economics is also called asPrice theory.5. The scope of micro economics islimited. It deals with theory of priceand theory of welfare.

1. Macro economics is concerned withthe study of aggregates like nationalincome, employment etc.2. It is the modern economic approachfollowed by modern economists likeKeynes.3. Macro economics analyses thebehaviour of macro variables such asnational income, aggregate supply,

aggregate demand, aggregate savingsetc.4. Macro economics is also called asIncome theory.5. Macro economics enjoys extensivescope. It is concerned with monetarytheory, income and employment theory,public finance, international trade,trade cycle, economic growth etc.





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Short Note on Micro economics.

Micro economics is the study of particular firms, particular households,individual prices, wages, income, individual industries and particular commodities.

The above definition gives an idea that, Micro economics is concerned with thestudy of the behaviour of the individual units. The word Micro is derived from theGreek word Mikros meaning small. Hence Micro economics means the study of

minute or small parts of the economy.

Short Note on Macro economics. Macro economics deals not with individual income but with the national

income, not with individual prices but with the price levels, not with individualprices but with the price levels, not with individual output but with the nationaloutput

Macro economics deals with the economic system as a whole. Itcan be defined as that branch of economic analysis which studies the behaviour ofnot one individual unit but all the units combined together. (i.e.) the study ofAggregates.

The word Macro is derived from the Greek word Macros meaning large.Hence macro economic is concerned with study of the entire economy. It makes atelescopic approach to study the function of an economy. It deals with aggregateslike total output, total employment, total savings, total investment, general pricelevel etc. Since Macro economics studies the economy in aggregates (large units), itis also known as lumping method.

Macro economics does not deal with the individual parts of the economy butwith the economy as a whole. It studies the forest as a whole and not the trees in it.





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Features of Perfect Competition.Perfect Competition: -A type of market where there are largenumber of buyers and sellers and no buyer or seller influences the marketindividually.

Features of Perfect Competition are_

1. Large number of buyers and sellers :- Perfect competition is a market wherethere are large number of buyers and sellers. This feature indicates thatboth the buyers and sellers do n0t have any major control over the marketand they cannot individually influence the market. Thus, it means that

quantity supplied by a single seller is so small that it does not affect themarket supply and the price of the commodity produced by hid. Similarly,quantity demanded by a single buyer does not influence the total demandand the price of the commodity.

2. Homogeneous products . A commodity produced by different producers isexactly identical in respect of quality, size, price, etc. So a seller has noexcuse to charge a higher price for his commodity. The buyer also need notdiscriminate between the sellers.

3. Complete Market information :- According to this feature both the buyersand sellers must have the complete knowledge of market, regarding price,demand and supply situations in the market.

4. Free entry and exist :- Perfect competition allows free entry and exist for thesellers of the commodity under consideration. The sellers are free to enter

the market at any time as per their wish and they also can quit the marketwhenever they want. There are no legal restrictions on the closing down ofthe firm.

5. Perfect mobility of factors of production :-It is an important feature of theperfectly competitive markets that all the factors of production like laborand capital are perfectly mobile, both geographically and occupationally. Iflabor and capital are move from one place to another as per therequirement of the market they are mobile geographically. If labor andcapital move from one type of job or occupation to other type of job easilywhich means they are mobile occupationally.

6. No transport Cost :- Perfect competition assumes that there is a absence oftransport cost. This is mainly because the seller will have no excuse oftransport cost to charge a different price.

Features of Pure Competition.

1. Large number of buyers and sellers : - Pure competition is a market wherethere are large number of buyers and sellers. This feature indicates thatboth the buyers and sellers do n0t have any major control over the marketand they cannot individually influence the market. Thus, it means thatquantity supplied by a single seller is so small that it does not affect themarket supply and the price of the commodity produced by hid. Similarly,





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quantity demanded by a single buyer does not influence the total demand

and the price of the commodity.2. Homogeneous products :- A commodity produced by different producers is

exactly identical in respect of quality, size, price, etc. So a seller has noexcuse to charge a higher price for his commodity. The buyer also need notdiscriminate between the sellers.

3. Complete Market information : - According to this feature both the buyersand sellers must have the complete knowledge of market, regarding price,demand and supply situations in the market.

Features of Monopoly market.Monopoly:- Monopoly is a type of market in which there is only one sellerproducing a commodity having no close substitute.

1. Single Seller :- In this type of market, there is only one seller producing aparticular commodity.

2. No substitutes :-Monopoly not only implies a single seller but it also means asingle seller producing a commodity having no close substitutes. If thesubstitutes are available, there will be a competition among the firms.Monopoly means a complete absence of competition. So under monopoly,the commodity has no close substitutes.

3. No distinction between a firm and industry :- Since there is only one seller ofa commodity, there is only one firm producing that commodity in themarket. So there is no distinction between the concepts of industry and firmunder monopoly.

4. No free entry and exist :- In the monopoly market, there are strong barriers

to the entry of a new firm in the market. This prevents new firms fromentering the market and so there is only one firm producing thatcommodity.

5. Large number of buyers :- Under monopoly there are large number ofbuyers in the market who compete with one another.

6. Downward sloping demand curve :- The demand curve of the monopoly firmslopes downward indicating that the monopolist can maximize sales only byreducing the price.

Features of Monopolistic Competition.Monopolistic competition:- Monopolisticcompetition refers to a market where many sellers sell similar but differentiatedproduct to a large number of buyers. In a monopolistic competition market, manymonopolistic firms compete with each other by producing same but differentiatedproducts.

For example, companies selling toothpaste products like Colgate, Pepsodent,Close-up, etc. fall under Monopolistic competition.

1. Large number of Sellers :- In a monopolistic competition market, there arelarge number of sellers. Hence no single seller can control the market





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supply. Each seller follows his own course of action. In other words each

seller is independent.2. Product differentiation :- Product differentiation is the most important

feature of monopolistic competition. Since all sellers sell the products whichare perfect substitutes for each other, they go for product differentiation.Every seller makes efforts to show that his product is superior to otherproduct. This differentiation is done through Advertisement, brands,trademarks, designs, packaging, color etc. Thus the products are nothomogeneous under monopolistic competition.

3. Selling costs :- One of the unique features of monopolistic competition is itsselling cost. Selling cost is the cost incurred by the seller on sales promotionactivities like advertisement, salesmans service etc. Selling cost enables theseller to persuade buyers to buy their products than products from othersellers.

4. Large number of buyers :- There are large number of buyers in a

monopolistic competition market. Thus the buyers purchase goods bychoice and not by chance.

5. Free exist and entry :- There is free entry and exist of firms undermonopolistic competition. There are no barriers for the firm to enter. Sinceeach firm produces a product which is little different from others, there isno possibility of more firms entering the market.

6. Competition : - Competition under monopolistic market is more as all thefirms sell close substitutes. But the competition is in two dimensional:

1. Price Competition under which the firms were competing with eachother by reducing their products price.

2. Non-price competition under which they compete throughadvertisement, and sales promotion activities, etc.

Features of Oligopoly.Oligopoly: - Oligopoly is an important form of imperfect competition.In the word Oligopoly Oligo means few and poly means seller. Oligopoly thereforerefers to the market structure representing few sellers or firms.

1. Few Firms : - Oligopoly is the market in which few firms compete with eachother. The simplest model of oligopoly is duopoly. Duopoly is the marketstructure when only two firms produce and supply the product. For e.g.Coke and Pepsi.

2. Nature of the product : In an oligopoly market, all the few firms produce anidentical product. Such an oligopoly market is called Pure Oligopoly. On theother hand, firms with product differentiation constitute imperfect

oligopoly.

3. Interdependence of Firms : In an oligopoly market, there is Inter -dependence among firms. Thus the move made by one firm to reduce priceattracts reaction from other firms.

4. Complex market structure : - The oligopolistic market structure is quitecomplex. Cartel is an example of collusive oligopoly. The non-collusiveoligopoly is the other form of complex market structure.





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5. Selling cost : - Advertisement is an important method used by oligopolists to

gain larger share in the market. The costs incurred on advertisement areselling costs.




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