MARKET

Index
Definition.
Features of Market.
Factors Affecting the Size and Extent
of Market.
Classification of Market.
Market Structure.

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
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.
b.
c.
d.
e.
f.
g.
h.

Nature of Demand
Durability
Portability
Cognigability
Sampling and grading of goods.
Adequate Supply
Substitutes.
Multi Uses.

Classification of Market

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

Firms
Equilibrium
Competition-

under

Perfect

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

are met : Change in o/p doesnt 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 :-

Total cost, revenue

TC
$385
350
315
280
245
210
175
140
105
70
35
0

TR

Loss
Maximum
profit

Profit

dr = dc
dq dq
Loss

1 2 3 4 5 6 7 8 9

Quantity

MR-MC Method :Costs

60

MC
MR=MC

50
40
30

C
P = D = MR
B

20
10
0

1 2 3 4 5 6 7 8 9 10

Quantity

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
equilibriuma) Profit Situation
b) Loss Situation
c) Normal Profit Situation

a) Profit Situation
MC

Price, Revenue and

Cost

MR=MC

AC

P1

P= MR= AR

profit

AVC

Q2*

Output

Q2*

ES= Avg. Profit

b) Loss Situation

Price, Revenue and

Cost

MC

AC
AVC
C

B
loss

P4

E
E

P4= MR4= AR4

Q4*

Output

EB= Avg. Loss

Shutdown Point -

The point where price

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

should stop production so that loss = FC only.

At P5, min AVC

Price, Revenue and Cost

MC

AC

AVC

(AR) = (AVC).
Therefore the
firm
should
shut down.

loss
P5

S
0

Q5
Output
*

P5= MR5= AR5

Q

c) Normal Profit situation

MC

Price, Revenue and

Cost

AR=AC

AC

P3

Q3*

Output

P3= MR3= AR3

P=AR=AC=MR=MC

Perfect Competition can be in

ii) Long Run
LMC

COS
T

LA
C
E

LMR=LA
R
Q

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

Normal profit making situation in

Imperfect competition

loss making situation in Imperfect

competition

Imperfect competition in
Long run profit

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 sellers supply affects
the market prices and each seller knows it.
Oligopoly market structure characteristics
are quite similar to that of amonopoly and
market dominated by a few firms.

A few sellers.
Homogeneous Product.
Interdependence.
Advertisement and sales promotion
costs.

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
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

Normal profit situation

Loss incurring situation

During long period

Profit making situation

Thank You
By:-

Abhishek Mathur
Bhupen Sharma
Khyati Sharma
Nijo Ninan
Sonakshi Joshi