2. Index
• Definition.
• Features of Market.
• Factors Affecting the Size and Extent
of Market.
• Classification of Market.
• Market Structure.
3. 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.
4. 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…
5. 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.
6. 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. Durability
c. Portability
d. Cognigability
e. Sampling and grading of goods.
f. Adequate Supply
g. Substitutes.
h. Multi Uses.
7. Classification of Market
Area Time Competit Function Commo Legality
1. Very ion 1.Mixed dity 1. Legal
1. Local
Short 2.Specialized
2. Regional
2. Short 1.Perfect 1.Product 2. Illegal
3.Sample
3.National 2. Imperfect 2.Stock
3. Long 4.Grading
4.Internati 3.Bullion
onal 4. Very long
8. 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.
9. 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.
10. 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.
11. 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.
12. 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.
13. 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.
15. 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
16. 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
17. 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
18. TR-TC Method :-
TC
TR
$385 Loss
Total cost, revenue
350
315 Maximum Profit
280 profit
245
210 dr = dc
175
140 dq dq
105
70
35 Loss
0
1 2 3 4 5 6 7 8 9 Quantity
19. MR-MC Method :-
Costs MC
60 MR=MC
50
40 A C
P = D = MR
30 B
20
10
0
1 2 3 4 5 6 7 8 9 10 Quantity
20. 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
21. a) Profit Situation
MC
MR=MC
Price, Revenue and Cost
AC
E
P1 P= MR= AR
profit AVC
S
Q
Q2 Q2
0 * *
Output ES= Avg. Profit
22. b) Loss Situation
MC
Price, Revenue and Cost
AC
AVC
C B
loss
P4 P4= MR4= AR4
E
E D
Q
Q4
0 *
Output EB= Avg. Loss
23. S h u t d o wn P o i n t - The
point where price is below AVC & as soon as firm attains this point it
should stop production so that loss = FC only.
MC At P5, min AVC
Price, Revenue and Cost
(AR) = (AVC).
AC
Therefore the firm
should shut down.
AVC
loss
P5
S P5= MR5= AR5
Q
0 Q5
*
Output
24. c) Normal Profit situation
MC
Price, Revenue and Cost
AR=AC
AC
P3
E P3= MR3= AR3
Q
Q3
0 *
Output P=AR=AC=MR=MC
31. 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.
32. 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…
33. …Cont
Cut throat competition.
Restriction on the entry and exit of firms.
Price rigidity.
Complicate market structure.
34. 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…
35. 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.
36. 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
