Match the characteristics with the corresponding market structures: (a) Differentiated products that are close substitutes for consumers, so their demand curves are relatively elastic; (b) Homogeneous product where all firms goods are perfect substitutes for consumers.

Introduction / Context:
This question checks your understanding of how different market structures are characterised by the nature of the products sold and the degree of substitutability between different firms goods. Correctly identifying whether a market has differentiated products or a homogeneous product is essential for distinguishing between monopolistic competition, pure competition, and monopoly. This knowledge is widely tested in examinations covering microeconomics and industrial organisation.

Given Data / Assumptions:

• Characteristic (a): Differentiated products that are close substitutes, leading to relatively elastic but not perfectly elastic demand curves.
• Characteristic (b): Homogeneous product where all firms goods are perfect substitutes for consumers.
• The options propose different pairings of these characteristics with monopolistic competition, pure competition, and pure monopoly.
• We assume standard definitions of these market structures from microeconomic theory.

Concept / Approach:
In monopolistic competition, many firms sell similar but not identical products. Each firm differentiates its product through brand, quality, location, or other features, yet products remain close substitutes so that consumers can switch between brands. As a result, each firm faces a downward sloping but relatively elastic demand curve. In pure or perfect competition, all firms sell a homogeneous product that is indistinguishable in the eyes of consumers, leading to perfectly elastic demand facing each firm. Pure monopoly, on the other hand, involves a single seller of a unique product with no close substitutes, which does not match either given characteristic.

Step-by-Step Solution:
Step 1: Match characteristic (a). Differentiated but close substitute products are a defining feature of monopolistic competition, not pure monopoly or pure competition.Step 2: Therefore, (a) should be paired with monopolistic competition.Step 3: Match characteristic (b). A homogeneous product that is a perfect substitute across firms is characteristic of pure or perfect competition.Step 4: In pure monopoly, the product has no close substitutes and certainly is not homogeneous across many firms, so this does not fit.Step 5: Comparing these matches with the options, only option (a) Monopolistic Competition, (b) Pure Competition aligns with both characteristics.Step 6: Therefore, the correct pairing is: (a) Monopolistic Competition, (b) Pure Competition.

Verification / Alternative check:
Standard textbooks describe monopolistic competition using examples such as branded soaps, restaurants, or clothing stores, where each seller offers a slightly different product but consumers still see them as alternatives. The market structure is characterised by freedom of entry and many sellers. In contrast, examples of pure competition include agricultural markets for wheat or rice, where individual farmers produce virtually identical products. These descriptions closely match the two characteristics in the question and confirm the identification made above.

Why Other Options Are Wrong:
(a) Monopolistic Competition, (b) Pure Monopoly: Pure monopoly does not involve homogeneous products supplied by many firms; it is a single firm situation.

(a) Pure Monopoly, (b) Pure Competition: Swaps characteristic (a) incorrectly, because monopoly involves unique products with no close substitutes, not differentiated close substitutes among many firms.

(a) Pure Monopoly, (b) Pure Competition (duplicate option): This again misassigns characteristic (a) to monopoly, which is incorrect for the reasons given.

Common Pitfalls:
Students sometimes confuse differentiated products with monopoly, thinking that any product differentiation means a monopolist. In reality, many firms can differentiate their products within the same industry, which leads to monopolistic competition. Another common mistake is to assume that homogeneous products always correspond to monopoly, when in fact homogeneity across many firms is the hallmark of perfect competition. Keeping these distinctions clear will help you accurately identify market structures in exam questions.

Final Answer:
(a) corresponds to monopolistic competition and (b) corresponds to pure competition.