Exam paper---read the requirement I send you carefully Essay - 3

Exam paper---read the requirement I send you carefully - Essay Example Due to increased competition in a perfect market, the bargaining power of the consumers is very high. The market trends are thus required to be followed by the companies in a market that is perfectly competitive. The price of products and services in a monopoly market is determined by the single player which also takes the government regulations into account. The products in a perfect market could not be differentiated as the products could replace each other. The products in a monopoly market could be differentiated and it is not possible to replace the products in a monopoly market. Response of a perfect market to changes in consumer demand A perfect market is a market that has the highest competition and is less concentrated. This means that the market is driven by a number of competitors which increases the level of competition for delivering products and services to the customers. The changes in the demand and its effects on the changes in price in a perfect market have been exp lained as follows. In a perfect market, the demand curve is perfectly elastic. This means that any further change in price will result in demand falling to zero (Mankiw, 2011, p.37). Thus a perfect market is represented by a horizontal demand line with the benchmark price remaining constant for the quantity demanded. ... Such an ideal condition is difficult to obtain under practical conditions. For a change in the consumer demand in a perfect market, the response of the market could be explained in the short term period as well as the long term period. In the short term period, a rise in the demand level of the products against the prevailing supply will increase the price of the products and services. The increase in demand over a short term period is represented by the green line over the dotted line. A rise in price of the products and services over the prevailing cost would provide the companies with economic profits (Hall and  Lieberman, 2007, p.108). The rise in the economic profits of the business would be supported by the revenues earned from the market. This is well supported by the economic theory of supply and demand and is explained by the graphical representation given below. â€Å"MC† and â€Å"ATC† are the marginal cost and the average respectively, â€Å"P† is t he price which exceeds the cost as a revenue driver. An example of the demand of coffee in a perfect market could be used to explain the market response. A rise in demand of coffee in the market against the prevailing supply would force the coffee firms to raise the prices which would provide them short term economic profits which are, however, not sustainable in the long run as the competition level would tend to bring down the prices very soon. The response of a perfect in the long run with the changes in demand level is explained by the graphical representation given below. With time, the number of firms in the market would increase as there in minimal barrier to entry and also in order to tap the market opportunity. Thus with the increase in supply, the demand line would