Personal Income Distribution and Market Structures

Personal Disposable Income and State Redistribution

Personal disposable income coincides with what actually reaches families for use. The reason is that the distribution of income goes through an adjustment process in which the state intervenes in a redistributive function. The result of this process yields the national or family income. To calculate this, one must:

• Subtract profits, taxes for workers, and social security contributions.
• Add the transfers that families receive from the state.

Personal Income Distribution and the Lorenz Curve

Personal income distribution helps us understand how national income is distributed among people within a country. The level of inequality is usually represented by a graph called the Lorenz curve. To represent it, the population is divided into groups according to the income they receive, comparing the percentage of the population against the percentage of income. The horizontal axis represents the cumulative percentage of individuals, and the vertical axis represents the cumulative percentage of income. If there were absolute equality, the curve would be a straight line.

Monopolistic Competition in Modern Markets

Monopolistic competition is the market model most commonly found in reality. It has few barriers to entry and exit, and there are many producers. The good that is exchanged is a differentiated product. The producer has some power to set the price, though this power is not absolute; prices can only be set slightly above the market rate. For the producer to retain the differentiation of their product, they must ensure that the differentiating factor is maintained over time and that consumers appreciate the difference.

Oligopoly and Market Dynamics

An oligopoly occurs when few companies offer a product. This is a market type that occurs in sectors where entry barriers to economic activity are high. The number of competing companies is small; they typically have large business operations and a significant percentage of market share. The small number of bidders makes the decisions of one company a decisive influence on what others will do.

Competition and Collusion in Oligopolies

In some oligopolies, companies try to compete on prices. An oligopoly with only two companies is known as a duopoly. There is also a type of collusive oligopoly in which bidders agree to set a single price, divide market share, or limit the production of the good. These behaviors are prohibited by competition law.