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In the ordinary sense, a market is defined as a place or geographical area where buyers & sellers deal with each other to buy & sell commodities at a certain price and at a given period of time. But, in economics, the term ‘Market’ does not refer to a specific place.
Market is a situation in which buyers and sellers come into contact for the purchase and sale of goods and services.
Market is a mechanism through which buyers and sellers come into contact with each other and buy and/or sell goods at mutually agreed prices.
“Market is the heart and soul of modern economic life”.
Main features of a market/Essential Elements of Market :
(a) Buyers and Sellers: Buyers and sellers must come into contact with each other for a market to exist. It is only after the contact between the buyer and the seller, that a transaction takes place.
(b) Area: You can easily find a marketplace nearer to a human settlement. But in today’s world, the market is not limited to a particular place. Today, in the age of the Internet, we have a rapidly growing online market that is not limited to any geographical area. A buyer can place an order to buy a good online. So modern Market exists physically and virtually.
(c) Commodity: The transaction between buyer and seller has to be over some good or service. So a commodity becomes an integral part of a market.
(d) Competition: Forms of market depending on the degree of competition among the sellers selling the goods, where the degree of the competition itself is determined by the interrelationship of among the goods and services sold by different sellers as well as the number of sellers present in the market.
(e) Money transaction: Money is the medium of exchange in the modern-day world. Consumers pay money to the seller to buy goods and services in the market. So money and the market are inseparable.
Market structure refers to the number and type of firms operating in the industry.
It refers to the types of markets in which the firms or producers operate.
It refers to the nature and degree of competition in the market for goods and services.
Main features of a market structure Or Basis of different Market Forms Or Factors Determining Market Forms:
1. Number of Buyers and Sellers
2. Nature of Product
3. Knowledge about Market
4. Freedom of Entry or Exit of the Market
5. Degree of price Influence
6. Selling costs and Transportation costs
Classification of Market Structure:
1. Perfect Competition:
Perfect competition refers to a market structure/situation in which there are large number of buyers and sellers. Firms sell homogeneous/ similar products at a uniform price. No individual firm can influence the price of the commodity.
It refers to the market situation in which there are large number of buyers and sellers of homogenous products. Price is determined by the industry and only one price prevails in the market. Example – Agricultural Product Market
Features of perfect competition
1. Very large number of buyers and sellers.
2. Homogeneous product.
3. Free entry and exit of firms.
4. Perfect knowledge about the market .
5. Firm is a price taker and industry is price maker.
6. Perfectly elastic demand curve (AR=MR)
7. Perfect mobility of factors of production.
8. Absence of transportation cost.
9. Absence of selling cost.
‘Monopoly’ is derived from two Greek words: ‘Monos and Polus’ ‘Monos’ means single and ‘polus’ means a seller.
Monopoly refers to a market situation where there is a single seller selling a product which has no close substitutes. The whole market is under his control and firm and industry is same. For example, Railways in India, Dakshinanchal Vidyut Vitran Nigam Ltd.
Features of Monopoly
1. Single Selelrs And Large No Of Buyers
2. Unique Product Without Close Substitute Product
3. Restriction On The Entry Of New Firms
4. Full Control Over Price – Monopolist Is A Price Maker
5. Price Discrimination
3. Monopolistic Competition
It refers to a market situation in which there are large no of firms which sell differentiated products. Market of product like textiles, soap, toothpaste, TV etc. examples of Monopolistic Competition Market
Monopolistic competition is a market structure which combines elements of monopoly and competitive markets.
Features Of Monopolistic Competition Market
1. Large No Of Buyers And Sellers
2. Differentiated Goods
3. Free Entry And Exit
4. Price Policy
5. Lack Of Perfect Knowledge
6. Non-price Competition
7. Selling Cost
The term oligopoly is derived from two Greek words: ‘oligi’ means few and ‘polein’ means to sell.
Oligopoly is a market structure in which there are only a few sellers (but more than two) selling homogeneous or differentiated products.Automobiles, Cement , Paints etc. So, oligopoly lies in between monopolistic competition and monopoly.
Features Of Oligopoly
1.Few Firms And Large No Of Buyers
2.Restriction On The Entry
3.Inter-dependance Between Firms
5.Lack Of Perfect Knowledge
7. Price Rigidity
The term “monopsony” derived from Ancient Greek (monos+ opsonía) monos means “single” and opsōnía means“ purchase“
Monopsony refers to a market condition in which there is a single buyer of a product or services.