Economics, Demand & Supply, & Perfect Competition, oligopolies, and Monopolies – By Mitchell Formica

Demand and supply can be seen in almost every market. To understand demand and supply we have to understand exactly what they are and what they do in a market. Demand concerns the person who is purchasing a product or service. The buyer has a certain need toward buying, the greater the need the more likely he/she will purchasing it. The biggest factor here is price, if a product that normally sells for $10 is sold at $15 the person will probably not want to buy it, as there is less of a demand due to the increase cost of the item. However, if the product that is normally sold at $10 is sold at $5 then there is a greater demand because the product is cheaper to buy. Supply on the other hand concerns the company that is selling a product or service. A hospital sells health care to patients, in this case the hospital would be the supply and the patient would be the demand. Although, the demand would be very high because people would rarely not pay for health care.

In different markets there are different types of demand and supply. For example in the apple market there is perfect competition. If there is a few fruit shops in the same area that are all selling apples at $3 each then for all shops to benefit from them they should all keep the price the same. This is because the people buying the apples would not be influenced by price and therefore be reluctant to go to any store. However, if one store changes the price from $3 to $2 then that store will earn more sales because the people will want to buy the cheaper apples. This situation is best known as perfect competition in which there are many firms that are all selling the same thing at the same price. There are to other types of markets I would like to talk about. Monopolies and Oligopolies.

A monopoly, like the board game is a market structure built around one big player that owns the full market share. The best way to picture a monopoly is to think of the board game, the aim of the game is to buy out the other players and own everything. Well just like in the game the market is based around one sole company that sells at its own price because there is no other competition. There is large barriers to enter the market which means that you will need power and wealth in order to take over in the market. This is normally hard as in most monopolies there is government approval needed and also a large customer base and big machines that are used by the companies. These are all things that are hard to come by which make it hard for other companies to enter the market. An example of a monopoly is the Saudi Arabian government’s ownership over the oil companies.

Oligopolies are like monopolies but have a small number of companies that own the market share. The best way to understand how an oligopoly works is to look at a situation in which oligopolies are present. Banks are a good example of an oligopoly because there are normally lots of little banks but only a few big ones that make up most of the market. These big banks are oligopolies just like airplane companies and oil companies are. They all have the same characteristics which are that they all sell the same thing and all have large barriers to entry. These companies normally try to balance the price however, if one does lower the price then the others will normally follow because they want an equal demand from the public.