The ability of suppliers to change prices is a crucial factor that affects the characteristics of perfect and imperfect markets. The perfect market is a hypothesis, where all goods and services are identical, and there are a large number of buyers and sellers, and economic actors have perfect information about prices, quality, and quantity. On the other hand, the imperfect market has a limited number of sellers, products are not identical, and information is not perfect. In this context, we will discuss the characteristics of perfect and imperfect markets under the ability of suppliers to change prices.
In a perfect market, suppliers do not have the ability to change prices as they are price-takers. The price of the product or service is determined solely by the market forces of supply and demand. Therefore, the price of the product or service in a perfect market is stable and uniform across all sellers. This characteristic ensures that there is no price discrimination, and all buyers have equal access to the product or service. Additionally, the total supply of the product or service is equal to the total demand, and there is no surplus or shortage of the product. This ensures that the market is always in equilibrium, and no buyer or seller has a dominant position.
In contrast, in an imperfect market, suppliers have the ability to change prices as they are price-setters. In an imperfect market, the prices of the product or service are not stable, and different sellers charge different prices for the same product or service. This results in price discrimination, where the seller charges different prices to different buyers. This discriminatory pricing leads to market inefficiency and reduces consumer welfare. Additionally, in an imperfect market, the supplier can take advantage of their market power and influence the price of the product or service. This results in the supplier charging a higher price than the market equilibrium price, resulting in deadweight loss and decreased productivity.
In conclusion, the ability of suppliers to change prices has a significant impact on the characteristics of perfect and imperfect markets. In a perfect market, the prices are stable, uniform, and there is no price discrimination, while in an imperfect market, the prices are not stable, various sellers charge different prices, and there is price discrimination. Therefore, policymakers and regulators need to ensure that they create policies that promote perfect competition and prevent monopolistic behavior that could be detrimental to the market's efficiency.
Discuss in detail the characteristics of perfect and imperfect markets under the Ability of suppliers to change prices
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