MARKETS &

MARKETS
STRUCTURES

INTRODUCTION TO MARKETS
The term market is derived fromthe latin word
Marcatus which means merchandise or trade
Market is a place where buyers and sellers
meet together for the exchange of title of
goods

Definition:
Market is a area or atmosphere of petential
exchange
------ Phillip Kotler
Market is not a geographical meeting place
but as any getting together of buyers and
sellers,in person, by mail, telephone, telegraph
and inter net or any other means of
communication
------ Prof. Mitchel

MARKETS CLASSIFICATION

PRICE DETERMINANTS (Demand

Price & Supply
Demand ) Supply
50
40
30

100
120
150

200
180
150

20
10

200
300

110
50

Different Market Structures

Perfect Market
A laarge number of buyers & sellers
Homogeneous product
Free entry and Exit
Perfect Knowledge
Indifference
Non Existence of Transport costs
Perfect mobility of resources.

Equilibrium of a firm under perfect

competition
It is a position where thefirm has no
incentives either to expand or contrast its
output.
There are two condition for attaining
euqlibrium by a firm.
1. Marginal cost must be equal to marginal
revenue (MC=MR)

EQUILIBRIUM POINT IN PERFECT

MARKET

Marginal cost is the additional cost incurred

for producing a additional product
Marginal revenue is the addtional revenue
when it sell one additional unit of output
When a firm increases its output so long as its
marginal cost become equal to marginal
revenue
When marginal cost is greater than marginal
revenue the firm reduces its production.
It is only point at the where MC=MR, the firm
attains equlibrium
Secondly marginal cost curve should cut the
marginal curve from the below. If marginal
curve cut the marginal curve from the above
the firm is having scope to increase the output
as the marginal cost curve slope downwards

EQUILIBRIUM POINT IN PERFECT

It is only with theMARKET
upwards slopping maraginal
curve, the firm attains equilibrium.
The reason is that marginal cost curve when
raisingcuts the marginal revenue curvefrom the
below

EQUILIBRIUM POINT IN PERFECT

MARKET
PL and MC represents
Price level and Marginal
Cost
PL also represents marginal revenue, Average
revenue and demand
As marginal revenue, Average revenue and
demand all are same in perfect competition to
price level
MC curve is U shapes curve cutting MR at R and
T
At point R MC curve cut the MR curve from the
below. So it is not equilibrium.
The downward slopping of MC curve indicates
that the firm can reduces its cost of production by
increasing output
As the firm increases its output it will reach
equilibrium at T.

SHORTRUN EQUILIBRIUM POINT IN

PERFECT MARKET

PRICING UNDER PERFECT MARKET

Under perfect market there are large number of
buyers and sellers with homogenous products
No single seller can fix price and no buyer can
influence the price
An individual seller is only price maker not price
maker.
In perfect market the problem is only one thing
i.e price making. No one can fix price the seller
should adjust the output
Marshall classified the time four kinds
Very short period
Short period
Long period
Very long period or secular period

PRICING DETERMINATION IN MARKET

PERIOD

The price determination in the short period

called market price
Market price is the determination by equilibrium
between demand and supply
Under this period goods are classified into
1. perishable products
2. non perishable products
1. perishable products
Perishable products like Milk, Flowers, Vegetables
etc
These products supply will not increase in short
span of time. And cannot be decreased also

PRICING DETERMINATION IN MARKET

PERIOD

PRICING DETERMINATION IN MARKET

PERIOD
2. Non-perishable products
Non-perishable products like Cloths, pens,
watches
In very short period the supplt of non-perishable
products cannot increased. Bur price decreases,
their supply can decrease by preserving some
stock
If price falls too much the whole stock will be
held back from the market and carried over to
next market period
The price below which the seller will refuse to
sell is called reserve price

PRICING DETERMINATION IN MARKET

PERIOD

Non-perishable products

MONOPOLY
The word monopoly is made up of two
syallables, MONO and POLY. Mono means
single and Poly means Seller
Single person or a firm
No close substitute
Large number of buyers
Price Maker
Supply and Price
Downward slopping
Types of Monopoly
Limited Monopoly
Legal Monopoly
Unlimited Monopoly
Private Monopoly
Single
Price
Government
Monopoly
Monopoly
Discriminating
Voluntary
Monopoly
Monopoly
Natural Monopoly

PRICING UNDER MONOPOLY

Monopoly refers to a market situation where
there is only one seller. He has complete
control over the supply of a commodity. He is
therefore in a position to fix any price.
Undere monopoly there is no difference
between firm and industry
This is becuase the entire industry consists of
a single firm
The monopoly can fix the price or supply any
one but he cannot fix both
If he fixes the price, his output will be
determined by the market demand for his
commodity. If he fixes the output to be sold, the
price for the commodity will be determined by
its market.

PRICING UNDER MONOPOLY

The market demand curve of monopist is
downward slopping.
Its corresponsing marginal revenue curve is
also downward slopping
But the MR curve always lies below the
average revenue curve.

PRICING UNDER MONOPOLY

The monopolist firm attains equilibrium when
its marginal cost becomes equal to the
marginal revenue. The always desiress to make
maximum profits.
He makes maximum profit when MC=MR
He goes on increasing his output if his
revenue exceeds his costs.
But when the costs exceed the revenue, the
monopolist firm incur losses.
Hence the monopolist curtails his production.
He produces up to that point where additional
cost is equal to the additional revenue.The
point is called equilibrium