Elasticity of demand Essay Example | Topics and Well Written Essays - 500 words

Elasticity of demand - Essay Example e behavior of price elasticity under monopolistic competition, oligopoly, and monopoly to determine the differences in price elasticity among the economic structures. Under monopolistic competition the price elasticity is high. One of the reasons this occurs is because there are many firms competing in the marketplace. Firms can enter easily into this market structure because there are no barriers of entry. An example of a firm operating under monopolistic competition is the fast food giant McDonalds. It is clear for customer that the prices between fast food chains change a lot based on the price moves made by others. When McDonalds introduced its one dollar value menu, competitors in the industry such as Burger King and Wendy’s followed with an economical menu of their own. The intense competition in under this market structure raises the price elasticity of demand for its players. In an oligopoly market structure the price elasticity of demand is medium. An oligopoly market is one in which there are a limited number of firms participating in the marketplace. Since there is competition the price elasticity of demand is affected by others. There are barriers of entry which limit the number of participants. The price elasticity of demand is lower in monopoly than in monopolistic competition since it now in the best interest of the participants for price wars to occur. Many fluctuations in price among participant in the market can be very damaging to the entire market structure. An example of an oligopoly is the airline industry. Airlines can not go in full price wars since their activities are interconnected as far as sharing resources from airports and the firm know the aggregate demand for flying is somewhat stable, thus a price war will only lower the total profits of all the participants in the market structure. The economic profits of firms participating in an oligopoly depend on the other players which lower the price elasticity of demand. A third market