Cambridge International as and a level Economics Ebook

Market structures
Th
e term 
market structure
describes the way in which 
goods and services are supplied by fi rms in a particular 
market or industry. More specifi cally, it relates to how 
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Chapter 7: The price system and the microeconomy 

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a market is organised in terms of the number of fi rms 
and the 
barriers to entry
for new fi rms wishing to join 
the market.
Market structure: 
the way in which a market is organised 
in terms of the number of firms and the barriers to the entry 
of new firms.
Barriers to entry: 
any restrictions that prevent new firms 
from entering an industry.
KEY TERMS
Over the years, economists have developed models of 
market structures. Th
ese are an idealistic representation 
of a market; their value is that any real market can be 
compared or benchmarked against the models and 
conclusions drawn with respect to their effi
ciency.
Figure 7.13
 shows the four models of market structure 
that are widely applied in Economics. It indicates the 
two limiting cases of 
perfect competition
and 
monopoly
. 
Th
ey are at opposite ends of the spectrum of competition. 
In between are 
monopolistic competition 
and 
oligopoly
, 
both of which are evidenced in most economies. Apart 
from perfect competition, all other market structures 
on this fi gure are referred to as being in 
imperfect 
competition
.
Perfect competition: 
an ideal market structure that 
has many buyers and sellers, identical or homogeneous 
products, no barriers to entry.
Monopoly: 
a pure monopoly is just one firm in an industry 
with very high barriers to entry.