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Market

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Market

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Market

  1. 1. Market ECONOMICS Notes MODULE - 4 Distribution of Good and Services 119 12 MARKET Inpreviouslessonwestudiedaboutproductionandfactorsofproduction.Whatever goodsareproducedbythecombinedeffortsoffactorsofproductionhavetobeplaced inmarketorofferedforsaleinthemarket.Wheneverandwhereverwewanttohave anything,wegotothemarketandbuythatthing.Itmaybesoap,shampoo,cloth,and so on. OBJECTIVES Aftercompletingthislesson,youwillbeableto: explain the meaning of market; understand the structure of market; distinguish the markets on the basis of channels of distribution; explain the meaning of online market. 12.1 MEANING OF MARKET Ordinarily,thetermmarketreferstoaplace,wheregoodsarepurchasedandsold,such asBigBazaars,ChandniChowkinDelhi,FashionStreetinMumbaiandmanymore. Marketshouldnotbelimitedtoaparticularplace.IneconomicsMarketcanexisteven withoutpersonalcontactofbuyersandsellers.Inthisway,“Marketreferstothe arrangementinagivenareawherebybuyersandsellerscomeincontactwith eachotherdirectlyorindirectly,tobuyorsellsgoods.”Thisdefinitionindicates thatfacetofacecontactisnotnecessaryformarket.Buyersandsellerscancarryon theirtransactionindirectly,throughagents,telephone,mobileorinternet.Whateverway thebuyersandsellersinteract,theydosotoexchangegoodsandservicesformoney. In the process, the price and quantity of the goods and services traded are also determined.
  2. 2. ECONOMICS MODULE - 4 Market Distribution of Good and Services 120 Notes Thus,marketisamechanismorsystembywhichbuyersandsellersinteracttodetermine thepriceandquantityofagoodorservice.” Important Features of a Market Asperthedefinitionstatedabove,amarkethasfollowingfeatures: 1. Commodity,i.e.,theremustbeacommoditywhichisbeingdemandedand sold. 2. Buyers and sellers, i.e., there must be buyers and sellers of the commodity. 3. Communication, i.e., there must be communication between buyers and sellers. INTEXT QUESTIONS 12.1 Fillintheblanks. 1. Amarketexistswherethereis.........................betweenbuyersandsellers. 2. Buyingandsellingtakesplaceina......................... 3. Theprocessof.........................and.........................takesplacesimultaneously inmarketplace. 4. Amarkethasexistenceof buyersandsellers,communicationbetweenthemand ......................... 12.2 STRUCTURE OF MARKET By“structureofmarket”wemeannatureoftheproduct,numberofsellersandbuyers inthemarketetc.Onthisbasiswecangivetwoextremeformsofmarket: 1. Monopolymarket 2. PerfectlyCompetitivemarket 12.2.1 Monopoly The word “Monopoly” has been derived from the two Greek words ‘Monos’ and ‘Polus’meanssingleseller.’Monos’meanssingleand‘Polus’meansseller,sotheword “Monopoly”meanssingleseller.Monopolyisamarketstructureinwhichthereisa singlefirmproducingalltheoutputandthereisnoclosesubstituteofproductsoldby themonopolist,therebyrulingoutanysortofcompetition.Inthismarketthesellerdoes notfaceanycompetitionbecausetherearenoothersellersoftheproductheisselling. The seller is in a position to charge a high price of his product depending upon the response of the consumers. Example: In India the government has monopoly in atomic energy, defence, public water supply system, railways, etc.
  3. 3. Market ECONOMICS Notes MODULE - 4 Distribution of Good and Services 121 Features of Monopoly (i) Asinglefirm:Themonopolististheonlyproducerofthegood.Hehasgotno competitor.Heistheonlyonewhorulesthemarketwithhiscommodity. (ii) No close substitute of the commodity: There are no close substitutes of the commodityproducedbythemonopolist.“Closesubstitute”meansanothersimilar producthavingsameuse.Themonopolistproducesalltheoutputinaparticular market. (iii) Pricemaker:Themonopolistbeingthesolesellerofthecommodityinthemarket decidesthepriceofthecommodityasthereisnoonetochallengehisprice.The monopolistisa‘price-maker’.Itdoesnotmeanthatmonopolistcanfixbothprice andthequantitydemanded.Ifhefixesahighprice,lessquantityofthecommodity willbedemanded. (iv) NoEntryofNewFirm:Itisnotpossiblefornewfirmstoenterinthemarketand competewiththesingleseller.Beingthesinglesellerorfirm,thereisnodifference betweenfirmandindustryundermonopoly. (v) The aim of the monopolist is to maximise profit 12.2.2 Perfectly Competitive market or Perfect Competition Theotherextremesituationofmonopolymarketiscalledperfectlycompetitivemarket orperfectcompetition. FeatureofPerfectCompetition (i) Large number of sellers and buyers – As against monopoly market, a competitivemarkethaslargenumberofsellerssellingthecommoditytoalarge numberofbuyers. (ii) Homogeneousproduct:Underperfectcompetitiononlyasingleproductissold. Thismeansallthesellerssellthesametypeofproducttobuyers.Sotheproduct isaperfectsubstitute. (iii) Freeentryandexit:Underperfectcompetitionthereisnobaronanynewfirm orproducertoenterthemarkettosellorproducetheproduct.Similarlyifany existingsellerwantstoexitthenheisfreetodoso. (iv) Everysellerwantstoearnmaximumprofit (v) The government’s role is to provide protection to sellers and do not interfere in business. (vi) Underperfectcompetitionsellersandbuyershaveperfectknowledgeaboutthe product. (vii) There is no bar on factors of production such as labour etc. to move from one productionunittoanothertodowork.
  4. 4. ECONOMICS MODULE - 4 Market Distribution of Good and Services 122 Notes MarketStructureinRealWorldSituation Thesituationofmonopolyorperfectcompetitionisnotseeninrealworld.Asper lawprivatemonopolyisnotallowed.Onlymonopolybythegovernmentexists. Now-a-daysthemarketisfloodedwithsomanyvarietiesofthesameproductthat perfectcompetitioninrealsensealsodoesnotexist.Taketheexampleof“soap”– aproductmeantfortakingbathorwashinghands.Underperfectcompetitionitis expectedthatonlyonetypeofsoapwillbesoldbymanysellers.Butinrealitywe havedifferentbrandsofsoapsavailableinthemarketandsoldbydifferentfirmssuch as Lux, Dove, Liril, Godrej, Nim, Mysore Sandal, Johnsons, Hamam, dettol, Lifebuoyetc.Theseareallusedforthesamepurposei.e.takingbath.buttheyare differentintermsofcolour,packaging,fragranceetc.Allthesesellersalsoincur heavyexpenditureonadvertisementtoselltheirkindofsoap.Contrarytoperfect competition where there are many sellers selling a single product without any advertisement,inthiscasetherearemanysellerssellingdifferentvariationsof particularproduct.Sowecannotsaythatthistypeofmarketisperfectlycompetitive. Thistypeofmarketiscalledmonopolisticorimperfectcompetition. INTEXT QUESTIONS 12.2 1. Whatismeantbymonopoly? 2. GivetwoexamplesofmonopolyinIndia? 3. Whyistherenodifferencebetweenfirmandindustryundermonopoly? 4. Whetherthemonopolyfirmispricemakerorprice-taker? 5. Whatdoyoumeanby“freeentry”underperfectcompetition? 6. Say Yes or No (a) Thereisonesellerunderperfectcompetion. (b) Therearedifferentgoodssoldunderperfectcompetition. (c) Governmentinterferesin productionunderperfectcompetition. (d) Productisperfectsubstituteunderperfectcompetition (e) Buyershaveperfectknowledgeabotuproductunderperfectcompetition 12.3 CLASSIFICATION OF MARKETS ON THE BASIS OF CHANNELS OF DISTRIBUTION OR SALEABLE LOTS Onthebasisofchannelsorsaleablelots,marketsareclassifiedinto: (a) Wholesalemarkets (b) Retailmarkets.
  5. 5. Market ECONOMICS Notes MODULE - 4 Distribution of Good and Services 123 (a) Wholesalemarkets Awholesalerisadistributorormiddlemanwhosellsmainlytoretailersandinstitutions, ratherthanconsumers.Wheninamarketgoodsaretransactedinbiglotsitiscalleda wholesalemarket.Wholesalersusuallydonotsellgoodsinsmalllots.Theyusuallysell totheretailers.Thewholesaleristheessentiallinkbetweenmanufacturersandend consumers.Itisthepresenceofwholesalersthatmanufacturersareincomfortzoneas theycanselltheirproductsinlargequantitiesandfocusonbusinessandproduction. (b) Retailmarkets Retailconsistsofthesaleofphysicalgoodsormerchandisefromafixedlocation,such asadepartmentalstore,shopkeeperinsmallorindividuallotsfordirectconsumption bythepurchaser.Inretailmarkets,goodsaresoldinsmalllots.Retailersnormallysell totheultimateconsumers. Manufacturer→Wholesaler→Retailer →Consumers Inthechannel ofdistributionofgoodsandservicesthepositionofaretailerismost importantasitisindirectcontactwiththefinalconsumers.Sothelocationoftheretail shoporoutletisveryimportantascomparedto wholesalebusiness.Aretail outletmust belocatednearertoresidentiallocalitiessothatpeoplecaneasilycometobuygoods andservices.Thereatileralsohastoincurlotofexpenditureondecorationofoffices shops and proper presentation of the commodities so that consumers are attracted towardstheretailshop. INTEXT QUESTIONS 12.3 1. Givesomeexamplesofretailoutletinyourlocality. 2. DefineWholesaler. 3. DefineRetailer. 4. DefineRetailMarket. 12.4 ONLINE MARKET OR ONLINE SHOPPING Itisaninnovativeprocesswherebyconsumersdirectlybuygoodsorservicesfroma sellerwithoutanintermediaryserviceovertheinternet.Itisalsoknownaselectronic commerce.Nowadays,onlineshoppinghasbecomepopular,shoppinghasevolved withthegrowthoftechnology.Inthisshoppingonecanuseacreditcardordebitcard tomakepayments,howeversomesystemsenableuserstocreateaccountsandpayby alternativemeans,suchas: Billingtomobilephonesandlandlines Cashondelivery
  6. 6. ECONOMICS MODULE - 4 Market Distribution of Good and Services 124 Notes Cheques Debitcard Postalmoneyorder Once payment has been accepted the goods or services can be delivered through downloading,distribution,in-storepickingetc. Onlinestoresareusuallyavailable24hoursaday,andmanyconsumershaveinternet accessbothatworkandathomesotheycan,ratherthanvisitinganystoreorshop,they prefertopurchasethroughinternetonly.Onlinestoresmustdescribetheproductsfor salewithtext,photos,andmultimediafileswithdetailinstructions.Inpresentscenario throughonlineshoppingonecanshopforvarietiesofgoodsandservicesinnotime. Over all, this mode of shopping has gained importance in recent years only due to exposuretotechnologyinthemarket. WHAT YOU HAVE LEARNT Ineconomicsmarketreferstothearrangementinagivenareawherebuyersand sellerscomeincontactwitheachotherdirectlyorindirectlytobuyorsellgoods. MonopolyandPerfectCompetitionaretwoextremeformsofMarketstructure. Monopoly is a market structure in which one firm possesses control over the market.Itisamarketofsingleseller,whosellsauniqueproducthavingnoclose substitutes PerfectCompetitionisamarketstructurewheremanyfirmssellahomogeneous product.Thereisfreeentryandexitunderthismarket.Buyersandsellershave perfectknowledgeaboutthemarketsituation. A wholesaler is a distributor or middleman who sells mainly to retailers and institutions,ratherthanconsumers. Aretailerisonewhosellsvarietiesofgoodsorservicesdirectlytothegeneralpublic. Onlineshoppingistheprocesswherebyconsumersdirectlybuygoodsorservices fromsellerwithoutanywastageoftime,withoutanintermediaryservice,over internetoncomputer. Onlineshoppingisaformofelectroniccommerce. TERMINAL EXERCISE 1. DefineMarket. 2. DefinePerfectCompetition.
  7. 7. Market ECONOMICS Notes MODULE - 4 Distribution of Good and Services 125 3. DefineMonopoly. 4. DifferentiatebetweenRetailandWholesaleMarket. 5. ExplainthefeaturesofPerfectCompetition. 6. ExplainthefeaturesofMonopoly. 7. Doyouthinkthatretailerisconcernedaboutlocationandpresentationofgoodsthat heoffersforsale?Ifyesthenwhy. ANSWERS TO INTEXT QUESTIONS Intext Questions 12.1 1. Interaction 2. Marketplace 3. Buying;Selling 4. commodity Intext Questions 12.2 1. Monopolyisamarketstructureinwhichasinglesellerproducingalltheoutputand thereisnoclosesubstituteofproductsoldbythemonopolist. 2. Atomicenergy,IndianRailwaysandPostandtelegraph 3. Becausemonopolististhesingleproducer/seller, 4. Price-maker 5. "FreeEntry"meanssellersunderperfectcompetitionarefreetomoveinandout ofthemarket.Therearenobarriersonentryofnewfirms. 6. (a) no (b) no (c) no (d) yes (e) yes Intext Questions 12.3 1. Stationeryshops,KendriyaBhandar,Motherdairy,Medicineshops 2. A wholesaler is a distributor or middleman who sells mainly to retailers and institutions,ratherthanconsumers. 3. Retailer is one who sales goods or merchandise from fixed location such as departmentalstore,shopkeeperinsmallorindividuallotsfordirectconsumptionby thepurchaser. 4. Retailmarketmeansthemarketinwhichgoodsaresoldinsmalllotstotheultimate consumers.

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