65. Comprehension: Read the passages given below and answer the questions No. 53-60
Whereas the realist approach focuses on the nation-state, liberal thinking has tended to see the individual as the basic unit of analysis. The primary motivating force in the economy is the competitive interaction bctween individuals, who are assumed to maximise their satisfaction, or utility, especially through the social institution of the market. The market aggregates these individual preferences and utilities (on the demand side), and (on the supply side) the action of profit-seeking firms. Some modern liberal thinkers, notably von Hayek, have argued that the market is, in fact, a spontaneous social institution, rather than an institution which is a product of human design.
Where realism has focused on competition between states, economic liberalism has focused on competition between firms. Economic outcomes will be affected by market structure. To explain the nature of market structure, liberal economists use ideal-typical cases. At one extreme, so called 'perfect' competition, with its infinite number of buyers and sellers, full information and perfect foresight, implies that individual buyers and sellers are 'price-takers' and the consumer is 'sovereign'. In this context, the 'power of the market' to constrain all producers is absolute. At the other extreme is monopoly (one supplier) and/or monopsony (one buyer). If both apply, there is a situation of bilateral monopoly, in which the power of one countervails that of the other. If there are many buyers, but only one supplier, then the monopolist has market power over the consumers. If there are many suppliers, but only one buyer, then the monopsonist has market power over the sellers. Of course, almost all markets and industries lie between these two extremes. In the case of oligopoly (when there are relatively few firms), firms will have some degree of market power, which will be increased ifthey are able to collude and this impose their collective power over the market. An extreme case of collusion is when firms form a cartel which sets prices and production quotas for the member firms.
Each of these market structures are also examples of different degrees of interdependence or dependence. In the extreme case of perfect competition, there is complete and symmetrical interdependence between buyers and sellers. In the case of oligopoly there is some interdependence between producers. This may be symmetrical or asymmetrical, depending on whether there is a dominant firm, or 'price leader' in a market, such as De Beers in the diamond trade, and IBM in mainframe computers for much of the post-war period. In general, the greater degree of market concentration on the supply side, the more asymmetrical the interdependence between producers and consumers, to the disadvantage of the latter.
(Source: Stephen Gill and David Law, The Global Political Economy: Perspectives, Problems and Policies, Baltimore, The Johns Hopkins University Press, 1988).
Q. One of the key differences between Realists and Liberals is (University of Hyderabad MA 2017)