Applied Economics

Quarter 1 – Module 5
Differentiate Various Market
Structures
(Week 5)
 What I Need to Know

This module was designed and written with you in mind. It is here to help you master
on how to differentiate various market structure based on number of sellers, types
of products, entry or exit to market, pricing power and others. The scope of this
module permits it to be used in many different learning situations. The language
used recognizes the diverse vocabulary level of students. The lessons are arranged
to follow the standard sequence of the course. But the order in which you read them
can be changed to correspond with the textbook you are now using.

The module has only one lesson:

• Lesson 1 – Differentiate various market structure based on number of
sellers, types of products, entry or exit to market, pricing power and
others.

After going through this module, you are expected to:

1. Differentiate various market structure based on:
a. number of sellers
b. types of products
c. entry or exit to market
d. pricing power
e. others.

What I Know

Pre – Assessment
Direction: Choose the letter of the correct answer. Write the letter that corresponds
to your answer on the space provided before each number.
_____1. Monopolistic competition features:
a. many buyers and sellers c. differentiated product
b. easy entry and exit d. all of the above
_____2. A tight oligopoly is a market where
a. there is only one supplier of the product
b. there are many sellers of differentiated products
c. there are few sellers with comparable market shares
d. there are many sellers of homogenous product
_____3. One of the main similarities of perfect competition and monopolistic
competition is_____.
a. Free entry and exit
b. The amount of product differentiation
c. The economic profit earned in the long run

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 d. None of the above
_____4. Which of the following would not be a monopolistic competitor?
a. Joe’s barbershop c. A fish dealer in the Market
b. A grocery store in a big city d. Microsoft
_____5. When an industry is classified as oligopolistic, it consists of_______
a. Only one seller
b. Many sellers with similar product
c. Only few sellers with either standardized or differentiated products
d. Only a few buyers
_____6. Which of the following is the most competitive market structure?
a. Perfect competition c. Oligopoly
b. Monopolistic competition d. Monopoly
_____7. Which of the following is the least competitive market structure?
a. Perfect competition c. Oligopoly
b. Monopolistic competition d. Monopoly
_____8. Which of the following is not a feature of monopolistic competition?
a. Numerous sellers c. Numerous buyers
b. Product differentiation d. Homogenous products
_____9. In which form of market structure would price be the key factor when
competing?
a. Perfect competition c. Oligopoly
b. Monopolistic competition d. Monopoly
_____10. If a firm sells its output on a market that is characterized by a single seller
and many buyers of a homogeneous product for which there are no close substitutes
and barriers to long-run resource mobility, then the firm is _____?
a. A monopolist c. A Perfect Competitor
b. An oligopolist d. A Monopolistic Competitor
_____11. If a firm sells its output on a market that is characterized by many sellers
and buyers, a differentiated product, and unlimited long-run resource mobility, then
the firm is_____?
a. A monopolist c. A Perfect Competitor
b. An oligopolist d. A Monopolistic Competitor
_____12. Which of the following types of firms is likely to be a monopolistic
competitor?
a. Local telephone company c. A restaurant
b. Automobile manufacturer d. All of the above
_____13. Which of the following is a differentiated product?
a. Humburger b. Shirt c. Automobile d. All of the above
_____14. Which of the following is a characteristic of monopolistic competition?
a. Few Sellers c. Easy entry and exit
b. Differentiated product d. all of the above
_____15. Which of the following is not an example of a market structure?
a. Perfect competition c. Oligopoly
b. Monopolistic competition d. Monopsony

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 Lesson
Differentiate Various
1 Market Structures
Like in any other business that has organizational structures, the
market itself has its own structure. In this module we are to differentiate each
market structure based on different factors.

What’s In

In the previous lesson, determining the implications of market pricing

on economic decision-making was discussed. To serve as a review a fill out
the diagram that shows actual scenarios with the possible solution to
situations regarding shortage and surplus.

Shortage Surplus
- -

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 What’s New

In this part of the module, the teacher will present the new lesson to
the learner.

Have you ever wondered why a particular company produces a product that
has the same usage but has different name on the label? This is the reason why
studying market structures is important because in this lesson we will learn how
market structures influence the decision making of the household when it comes to
buying products and also setting prices. Below are pictures that can represent each
market structure try to identify each using the jumbled letters
as your guide.

E R P F T C E
O C M T P E T N I O I

1. _____________________________

O M P O L Y N O

2. _________________________

O I L P O G O L Y

3. _________________________

P M O O N O I L T S I C
O C M T P E T N I O I

4. _________________________

What is It

In this part, the teacher provides brief discussion about the lesson. It
aims to discover and develop new skills to learner.

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 The analysis of market structures is of great importance when studying
microeconomics. In this module, how the market will behave, depending on the
number of buyers or sellers, its dimensions, the existence of entry and exit barriers,
etc. will determine how an equilibrium is reached, will be studied.

Market Structure

Perfect Competition
Perfect competition or competitive markets -also referred to as pure, or free
competition-, expresses the idea of the combination of a wide range of firms, which
freely enter or leave the market and which considers prices as information, since
each bidder only provides a relative small share of the good to the market and thus
do not exert a noticeable influence on it. Therefore, perfect competitors cannot
influence the levels of market clearing prices. Also, buyers are numerous and
disperse, which also means that they cannot influence prices.
This market model is based on a set of assumptions, each of them
representing a necessary but insufficient condition to ensure perfect competition.
These assumptions are:
a. Homogeneous product: all firms offer the same goods, with the same
characteristics and quality as the others, without any variations.
b. Large number of agents: there should be a sufficient quantity of buyers and
sellers, so that no action from a single agent will affect the market structure or its
prices.
c. No entry or exit barriers: there has to be free entry and exit of agents in the
market. This assumption is of special interest for firms, which must be able to enter
or leave the market freely.
d. Price flexibility: price adjustments to changes happen as fast as possible. Usually,
price changes are assumed instantaneous.
e. Free and perfect information: all agents have perfect knowledge of products and
their prices, and everything else related to them, as well as free access to this
information.
f. Perfect factor mobility: all factors should be able to change so adjustments
processes can be carried out with the greatest efficiency.
g. No government intervention: markets should be left alone as government
intervention would only lead to imbalances in perfectly competitive markets.

Monopoly
Monopoly (from the greek «mónos», single, and «polein», to sell) is a form
of market structure of imperfect competition, mainly characterized by the existence
of a sole seller and many buyers. This kind of market is normally associated
with entry and exit barriers. All of these features give the monopolist the ability to
set prices with the only limitation of consumers’ willingness to pay. Therefore, in
monopolies, the seller is a price-maker and consumers will be price-takers.

Oligopoly
Oligopoly (from the Greek «oligos», few, and «polein», to sell) is a form of market
structure that is considered as half way between two extremes: perfect
competition and monopolies. This kind of imperfect competition is characterized by
having a relatively scarce amount of firms, but always more than one, which produce
a homogeneous good. Due to the small number of firms in the market, the strategies

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between firms will be interdependent, thus implying that the profits of an oligopolistic
firm will highly depend on their competitors’ actions.
Monopolistic Competition

Monopolistic competition is a market structure defined by four main

characteristics: large numbers of buyers and sellers; perfect information;
low entry and exit barriers; similar but differentiated goods. This last one is key to
distinguish monopolistic competition from perfect competition since in the latter all
products are homogenous. This product differentiation leads consumers to perceive
products in this market as unique, providing firms with a monopolistic-like property
that enables them having price-making power.

What’s More

The teacher would like to solidify your understanding about the topic
being discussed.
Activity 1
Match column A with column B. Write the letter of your choice before the number. You
can use the same letter as many as needed
Column A Column B
______1. A. Perfect Competition
B. Monopoly
C. Oligopoly
D. Monopolistic Competition
______2.

______3.

______4.

______5.

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Activity 2
Direction: Choose among the following choices that best describes each statement.
Write the letter of your answer in the space provided before each number.

a. Perfect Competition b. Monopoly c. Monopolistic Competition d. Oligopoly

______1. It is also referred to as pure or free competition
______2. It is a market structure wherein there are only few sellers involved
______3. Barriers to entry and exit are blocked. Wherein no one is able to enter due
to high capital needs.
______4. There is only one seller who provides to all consumer
______5. It is a combination of monopoly and perfect competition

What I Have Learned

In this part of the module, the teacher would like to know what you
have learned in the lesson.

Directions: Read the following items and fill in the blanks with the correct answer.
Choices are provided in the box you can use the words in the box as many times
needed.

Few Many Differentiated Homogenous

None Low Entry and Exit Cost High Price Maker

Perfect Monopolistic
Characteristic Monopoly Oligopoly
Competition Competition
a. number of
Many 1. 2. Many
sellers
b. types of
3. Limited 4. 5.
products
c. entry or exit
6. 7. High 8.
to market
d. pricing Price maker but
power Price Taker 9. interdependent 10.
behavior

What I Can Do

In this part of the module, the teacher would like to know how
you can apply the lesson in real life situation.
Direction: Answer the question below with a minimum of 160 to a maximum of 300
words. Use a separate sheet for your answer. (Rubric:10 points- comprehensive and

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 analytical 8-9 points- well written and some includes analysis; 5-7 points-well written
but lacks analysis; 2-4 points- weak essay; 1 point Poorly written and lack strength)

1. As an ABM student who is exposed of different market scenarios, why do

you think competition is important in the market? Justify the benefits and
negative effects of competition inside the market.

Assessment

Directions: Identify each item if true by writing T and if false write F before each
number.
_______1. Oligopoly is a market structure that has few sellers.
_______2. Among all market structures monopoly is the most competitive in nature
_______3. Monopolistic competition is what almost all firms in the Philippines
follow.
_______4. Perfect Competition has no barrier to entry and exit
_______5. Differentiated products are goods that are similar but has distinct
characteristic than others.
_______6. Monopoly has NO control over price.
_______7. Agricultural products such as fruits and vegetables are examples of
monopolistic competition.
_______8. Mónos, single, and polein, to sell.
_______9. The different telecommunication companies in the Philippines are
examples of Monopoly.
_______10. Market structure is a descriptive organizational term for discussing the
economics of the market and other characteristics of the market.

Additional Activities

In this part, the teacher provides another activity to enrich the

knowledge or skill of the learner about the lesson.
Direction: Fill in the diagram below by arranging which market structure is more
competitive than others

More Competition Less Competition

1. 2. 3. 4.