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Market
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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