Meaning of Market

Economists understand by the term market not

any particular market place in which things are
bought and sold but the whole of any region in
which buyers and sellers are in such free
intercourse with one another that the price of
the same goods tends to equality easily and
quickly.
Essentials of market:
a. A commodity which is dealt with
b. The existence of buyers and sellers
c. A place, be it a certain region, a country or
the entire world,
d. Such intercourse between buyers and sellers
that only one price should prevail for the
same commodity at the same time.
Classification of markets
Markets may be classified:
a. On the basis of area as local, national and world
markets.

b. On the basis of time, as market price on any particular

day or moment, short-period price, long period price,
or secular market covering generation; and

c. On the basis of nature of competition obtaining there

in as perfect markets and imperfect markets.
Size of the market
The size of the market depends on several factors:
a. Character of the commodity
b. Nature of demand
c. Means of communication
d. Peace and security
e. Currency and credit
f. Policy of the state
g. Degree of division of labor
 Perfect and imperfect markets:
 A market is said to be perfect when all the potential
sellers and buyers are promptly aware of the prices at
which transactions take place and all the offers made
by other sellers and buyers.

 In such a condition, the price or a commodity will

tend to be the same (after allowing for cost of
transport including import duties) all over the market.
Perfect and imperfect markets:(Cont’d)…
 A marked is said to be imperfect when some buyers or
sellers or both are not aware of the offers being made
by others.

 Naturally, therefore, different prices come to prevail

for the same commodity at the same time in an
imperfect market.
 Conditions for a perfect Market
 For a market to be perfect the following conditions are

essential:

a. Free and Perfect Competition.

b. Cheap and Efficient Transport and Communication.

c. Wide Extent.
Type of the market No. of firms Nature of the
commodity
A. Perfect Competition
Perfect or pure Infinite Homogeneous
competition
B. Imperfect Competition
Monopolistic Many Differentiated
Competition
Perfect oligopoly A few Homogeneous
Imperfect oligopoly A few Differentiated

C. Pure or Absolute Monopoly

Pure or Absolute One Homogeneous
Monopoly
Pure or perfect competition
Pure competitions is said to exist when the following
conditions are fulfilled:
i. Large number of Buyers and Sellers
ii. Homogeneous Product
iii. Free entry or Exit
iv. Perfect Knowledge
v. Absence of Transport Costs
vi. Perfect Mobility of the Factors of Production.
Imperfect competition
Imperfect competition takes the following main forms:

 Monopolistic competition

 Oligopoly

 Monopoly
Monopolistic competition
The main features of monopolistic competition are as
under:
 The number of dealers is not large as under perfect
competition.
 The products are not homogeneous.
 Same price does not rule in the market throughout.
Rather different prices are charged by different
producers for products which are rally similar, but are
made to appear different through advertisement, high
pressure salesmanship and labeling and branding.
Monopolistic competition (Cont’d)…….
 The demand curve or sales curve or what is also
called average revenue (AR) curve, is not a
horizontal straight line. It is, a downward sloping
curve.
 Thus, under monopolistic competition, the demand
for product is not perfectly elastic; it is responsive
to changes in price
Oligopoly
When there are only a few sellers of a product, it is

called Oligopoly

Every seller can exercise an important influence on

the price-output policies of his rivals.

The number of sellers is not very large and each seller

controls a substantial portion of the supply.

Monopoly:
 In a monopoly there is only a single producer or seller
who controls the entire market.
 There are no substitutes for his product.
 A single seller or producer controls the entire supply
and can fix the price.
 He is the firm and he also constitutes the industry.
 The AR curve always slopes downward to the right, but
it is less elastic.