Market Strucutre

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. Durabilityc. Portabilityd. Cognigabilitye. Sampling and grading of goods.f. Adequate Supplyg. Substitutes.h. Multi Uses.

Classification of Market

Area1. Local

2. Regional3.National4.Internati

onal

Time 1. Very Short

2. Short3. Long4. Very

long

Competition

1.Perfect2.

Imperfect

Function

1.Mixed2.Specialize

d3.Sample4.Grading

Commodity

1.Product2.Stock

3.Bullion

Legality1. 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 StructureMarket Structure

Perfect Competition

Imperfect Competition

Monopolistic Competition

Oligopoly

Duopoly

Monopoly

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 Perfect Competition-

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 cos

t, r

even

ue

$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,

Rev

enue

and

C

ost

Output

MC

AC

AVC

QQ2*

P= MR= AR

0

profitP1

Q2*

E

MR=MC

S

ES= Avg. Profit

b) Loss SituationP

rice,

Rev

enue

and

C

ost

Output

MC

AC

AVC

Q

P4

Q4*

0

lossP4= MR4= AR4E

BC

DE

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.

Pri

ce, R

even

ue

and

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,

Rev

enue

and

C

ost

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 period1. profit making situation2. Normal proit situation3. loss incurring situation

• During long period1. Profit making situation

Profit making situation

E

Normal profit situation

E

Loss incurring situation

E

During long period Profit making situation

E

Thank YouBy:-

Abhishek Mathur Bhupen Sharma Khyati Sharma Nijo Ninan Sonakshi Joshi