MARKET

• Definition.

• Features of Market.

• Factors Affecting the Size and Extent of Market.

• Classification of Market.

• Market Structure.

Index

Definition

Generally market is the place where buyers and sellers are physically present and finalize the transaction.

• Prof Stonier and Prof Hague:-

By a market economist mean any organization whereby buyers and sellers of a goods are kept in close touch with each other.

Features of Market

• One Area:- Denote to a area or a region in which

no of buyers and sellers are scattered. They are

connected with one another via brokers, agents,

letters. Etc.

• Buyers and Sellers:- Buyers and Sellers are

must for market. In Transaction Physical Presence

is not necessary.

• One Commodity:- For the existence of a market

there should be at least one commodity like Wheat,

vegetables, etc and the market is termed as wheat

market, vegetables market and so on.

• CONT…

CONT…

• Perfect Competition:- Acc to

Prof. Coornot, market must

posses the characteristic of

perfect competition where in

buyers and sellers are free to

enter in the market.

• One Price:- In Perfect

competition between buyers

and sellers. The market area

should have one price only.

Factors Affecting the Size and Extent of Market.

The Size and extent of market is affected by the

following factors:-

1. Characterics of commodity:-

a. Nature of Demand

b. Durability

c. Portability

d. Cognigability

e. Sampling and grading of goods.

f. Adequate Supply

g. Substitutes.

h. Multi Uses.

Classification of Market

Area

1. Local

2. Regional

3.National

4.International

Time

1. Very Short

2. Short

3. Long

4. Very long

Competit

ion

1.Perfect

2. Imperfect

Function

1.Mixed

2.Specialized

3.Sample

4.Grading

Commo

dity

1.Product

2.Stock

3.Bullion

Legality

1. Legal

2. Illegal

On the basis of Area/Region.

1. Local Market- When buyers and sellers are

limited to an area or region then the market is

called local market.

2. Regional Market- When buyers and sellers are

concentrated to a certain region/area. The area is

wide then the local market.

3. National Market- When the demand of a

commodity is limited the boundary of the

country.Eg. Market of Gandhi cap , Nehru Cap.

4. International Market- When the demand of a

commodity crosses the boundary of a country.

On the basis of Time Element

1. Very Short- Supply of a Good is limited. Cannot

increase the supply. Demand determines the

price of such commodities.

2. Short Period- Production can be increased.

Demand plays an important role in price

determination.

3. Long Period- Supply can be adjusted to the

quantity demanded. Supply plays an imp role in

price deter. Also called Normal Price.

4. Very long- Both demand and supply can be

changed. Demand Inc with the inc in tastes,

habits, fashion etc. and Supply inc with the inc in

variable inputs.

Market based on competition• Perfect Market- Where there is

Homogeneous products. Free Entry

and exit from market of a firm.

Perfect knowledge of market

condition, and perfect mobility of

factors of production.

• Imperfect- Where perfect

competition is not in existence.

Number of buyers and sellers are

small. No perfect Knowledge of

market conditions. There is no single

price in this market.

On the basis of Functions

• Mixed/General market- Where all types of good

are bought and sold. Found in cities.

• Specialized market- Where particular

commodity is sold, e.g. vegetables, food grains

cloths etc.

• Marketing by Samples- When goods are

bought and sold on the basis of samples. E.g. Oil

seeds, raw cotton.

• Marketing by grades- When the goods are

graded then different buyers and sellers deal in

such goods on the basis of their grades.

On the basis of nature of comodity

• Product Market- Where particular

product is bought and sold. E.g.

Agri product sold in agri market

(krishi Mandi).

• Stock Market- Market where

stock and shares, bond, securities

debentures etc are bought and sold.

• Bullion Market- Market where

Silver and Gold are bought and

sold. In this market metallic trading

takes place.

Market based on legality

• Legal Market- Where legal Transactions

of goods and services take place.

Recognized by the Govt. Also called fair

market.

• Illegal market- Where high prices are

charged what have been fixed by the Govt.

Happens when supply is short. Business

earn profits by indulging in Black Marketing,

Smuggling. Hongkong market is an illigal

market.

Market Structure

Perfect Competition

Perfect Competition is a market structure in which there is

a large number of sellers and buyers

having homogenous product and

there is single price in the market

Salient Features :-

Large no. of buyers and sellers.

Homogeneous product.

Free entry and exist of firms in an industry..

Perfect knowledge of market conditions.

No transport cost.

Firms are price takers.

Uniform Price

Firm’s Equilibrium under PerfectCompetition-

An individual firm is c/a in equilibrium when 2 conditions

are met :-

• Change in o/p doesn’t encourage firm

• Firm is earning max. profit

There are 2 methods of knowing equilibrium :-

i. TR and TC method

ii. MR and MC method

TR-TC Method :-

TRTC

0

Tota

l cost,

revenue

$3853503152802452101751401057035

Quantity1 2 3 4 5 6 7 8 9

Maximum

profit

Loss

Profit

Loss

dr = dcdq dq

MR-MC Method :-

Costs

1 2 3 4 5 6 7 8 9 10 Quantity

60

50

40

30

20

10

0

CP = D = MRA

B

MR=MC

MC

Perfect Competition can be in :-i) Short Run

• No entry or exit of any firm.

• Firm will be in equilibrium where MR=MC.

• Firm can have 3 situations when it is in equilibrium-

a) Profit Situation

b) Loss Situation

c) Normal Profit Situation

a) Profit SituationP

rice, R

evenue

and

Cost

Output

MC

AC

AVC

QQ2

*

P= MR= AR

0

profit

P1

Q2

*

E

MR=MC

S

ES= Avg. Profit

b) Loss SituationP

rice, R

evenue

and

Cost

Output

MC

AC

AVC

Q

P4

Q4

*0

loss

P4= MR4= AR4E

BC

DE

EB= Avg. Loss

S h u t d o w n P o i n t - The

point where price is below AVC & as soon as firm attains this point it

should stop production so that loss = FC only.

Pri

ce, R

even

ue a

nd

Co

st

Output

MC

AC

AVC

Q

P5

Q5*

0

loss

P5= MR5= AR5

At P5, min AVC

(AR) = (AVC).

Therefore the firm

should shut down.

S

c) Normal Profit situationP

rice, R

evenue

and

Cost

Output

MC

AC

Q

P3

Q3

*0

P3= MR3= AR3

E

P=AR=AC=MR=MC

AR=AC

Perfect Competition can be in ii) Long Run

LMR=LAR

LMC

LAC

P

COST

Q

E

Imperfect

• In this market there are small no of

firms. Having Large no. of buyers and

sellers with product differentiation.

Imperfect competition in the short run profit

E

Normal profit making situation in Imperfect competition

E

loss making situation in Imperfect competition

E

Imperfect competition in Long run profit

E

Monopolistic

A large number of buyers and sellers.

Product differentiation.

Free entry and exit of firm.

Non Price competition.

Varying preference of consumers.

Facilities to the customers.

Oligopoly

• Another kind of imperfect competition. No. of

sellers are few. Each seller’s supply affects the

market prices and each seller knows it. Oligopoly

market structure characteristics are quite similar to

that of a monopoly and market dominated by a few

firms.

A few sellers.

Homogeneous Product.

Interdependence.

Advertisement and sales promotion costs.

Cont…

…Cont

Cut throat competition.

Restriction on the entry and exit of firms.

Price rigidity.

Complicate market structure.

Monopoly

• When there is single seller

or producer in market. Has

full control on supply and

there is no close substitute.

R.S.E.B (Rajasthan State

Electricity Board) , Railways,

post and Telegraph are the

examples of this type of

market structure.

• Cont…

Cont…

Single seller and large

number of buyers.

No close substitute.

One firm on industry.

Restrictions on the entry.

Control over the supply.

Either price or supply

fixation.

Price and output determination

• During short period

1. profit making situation

2. Normal proit situation

3. loss incurring situation

• During long period

1. Profit making situation

Profit making situation

E

Normal profit situation

E

Loss incurring situation

E

During long periodProfit making situation

E

Thank You

By:-

Abhishek Mathur

Bhupen Sharma

Khyati Sharma

Nijo Ninan

Sonakshi Joshi