Introductory Economics

Introduction to Market

Market:

• The firm’s price and output decisions are made in a given market. The term market is used indifferent ways. The word market comes from the Latin word "marcatus" which means merchandise or trade or a place where business is conducted.
• The market, in economic sense, refers not necessarily to a place but to a commodity or commodities, and buyers and sellers of the same, who are in direct competition with other.
• According to Cournot, “Economists understand by the term Market not any particular place, in which things are bought and sold, but the whole of any region in which buyers and sellers are in free intercourse with one another that the prices of same goods tend to equality easily and quickly.

Components of a market:
For a market to exist, certain conditions must be satisfied. These conditions should be both necessary and sufficient. They may also be termed as the components of a market.

• The existence of a good or commodity for transactions (Physical existence is, however, not necessary).
• The existence of buyers and sellers.
• Business relationship or intercourse between buyers and sellers; and
• Demarcation of area such as place, region, country or the whole world.

The existence of a perfect competition or uniform price is not necessary.

Types of markets:
Markets may be classified on the basis of dimensions like area, time, commodities, volume and competition.

On the basis of area:
On the basis of area from which buyers and sellers usually come for transactions, markets may classify into the following four classes:

a) Local or Village markets: A market in which the buying and selling activities are confined among the buyers and sellers drawn from the same village or nearby villages. The village market exists mostly for perishable commodities.

b) Regional Markets: A market in which buyers and sellers for a commodity are drawn from a larger area than the local markets. Regional markets in India usually exist for food

c) National Markets: A market in which buyers and sellers are at the national level. National markets are found for durable goods like jute and tea.

d) World Market: A market in which the buyers and sellers are drawn from the whole world. These are the biggest markets from the area point of view. These markets exist in the commodities, which have a worldwide demand and or supply such as coffee, machinery, gold, silver etc.

The storage facility, transportation preservation and processing techniques used can enhance the area dimension of market for a commodity. e.g. tv1ushroom local to wider area by dehydration; milk –pasteurization enhances the area dimension from local to regional.

On the basis of time Span:
a) Short period Markets: The markets, which are held only for a few hours we called short period markets. The products dealt with in these markets are of a highly perishable nature, such as fish, vegetables, milk and flowers. In these markets, the prices of commodities are mainly governed by the extent of demand for, rather than by the supply of the commodity.

b). Long-period markets: There markets are held for a longer period than the short period markets. The commodities traded in these markets are less perishable and can be stored for some time e.g. food grains and oil seeds. The prices are governed both by the supply and demand forces.

c). Secular -Markets: These are markets of a permanent nature. The commodities traded in these markets are durable in nature and can be stored for many years. Example is markets for machinery and manufactured goods.

On the basis of Number of commodities :
A market may be general or specialized on the basis of the number of commodities in which transactions are completed.

a. General Markets: A market in which all types of commodities, such as food grains, oil seeds, fiber crops, gur etc. are bought and sold is known as general markets. These markets deal in a large number of commodities.

b. Specialized Markets: A market in which transactions take place only is one or two commodities are known as specialized market. For every group of commodities, separate markets exist. The examples are food grain markets, vegetable market, wool market and cotton market.

On the basis of nature of commodities:
On the basis of the type of goods dealt in markets may be classified into the following categories.

a. Commodity Markets: A market which deals in goods and raw materials such as wheat, barley, cotton, fertilizer seed, gold etc. are formed as commodity markets.

b. Capital Markets: The markets in which bonds1 shares and securities are bought and sold are called capital markets, for example, money market and share market.

On the basis of volume of transactions:

There are two types of markets on the basis of volume of transactions at a time.

a. Wholesale Markets: A wholesale market is one in which commodities are bought and sold in large lots or in bulk. Transaction in these markets takes place mainly between traders.

b. Retail Markets: A retail market is one in which commodities are bought and sold to the consumers as per their requirements. Transactions in these markets take place between retailers and consumers. The retailers purchase in wholesale markets and sell in small lots to the consumers. These markets are very near to the consumers.

On the basis of degree of competition:
On the basis of competition, markets may be classified into the following categories.

a. Perfect Markets : A perfect market is one in which the following conditions hold good.

• • There are a large number of buyers and sellers.
• • All the buyers and sellers in the market have perfect knowledge of demand, supply and prices.
• • Prices at any one time are uniform over a geographical area, plus or minus the cost of getting supplies from surplus to deficit areas.
• • The prices are uniform at anyone place, over periods of time, plus or minus the cost of storage from one period to another.
• • The prices of different forms of a product are uniform plus or minus the cost of converting the product from one form to another.

b. Imperfect Markets: the markets in which the conditions of perfect competition are lacking are characterized as imperfect markets. The following situations, each based on the degree of imperfect, may be identified.

i) Monopoly Market: Monopoly is a market situation in which there is only one seller of a commodity. He exercises sole control over the quantity or price of the commodity. e.g. Railways.

ii) Duopoly Market: A duopoly market is one, which has only two sellers of a commodity, e.g. two retailers in a village.

iii) Oligopoly Market: A market in which there are more than two but still a few sellers of a commodity is termed as an oligopoly market e.g. different air lines operating in our country.

iv) Monopolistic Competition: When a large number of sellers deal in heterogeneous and differentiated form of a commodity, the situation is called monopolistic competition. e.g. Tea and Coffee by different companies, pump sets, fertilizers etc.

On the basis of stage of marketing:
On the basis of the stage of marketing, markets may be classified into two categories

a. Producing markets: Those markets which mainly assemble the commodity for further distribution to other markets are termed as producing markets. Such markets are located in producing areas.

b. Consuming Markets: Markets which collect the produce for final disposal to consuming population are called consuming markets. Such markets are generally located in areas where production in inadequate, or in thickly populated urban centers.

On the basis of extent of public intervention:
Based on the extent of public intervention, markets may be place in any one of the following classes.

a. Regulated markets: These are those markets in which business is done in accordance with the rules and regulations framed by statutory market organization representing different sections involved in markets. The marketing costs in such markets are standardized and practices are regularized.

b. Unregulated markets: these are the markets in which business is conducted without any set rules and regulations. Traders frame the rules for the conduct of the business and run the market. These markets suffer from many ills ranging from unstandardized charges for marketing functions to imperfections for farm products.

On the basis of population served:
On the basis of population served by a market, it can be classified as either urban or rural market:

a. Urban market: A market which serves mainly the population residing in an urban area is called an urban market. The nature and quantum of demand for agricultural products arising from the urban population is characterized as urban market for farm products.

b. Rural market: the world rural market usually refers to the demand originating from the rural population. There is considerable difference in the nature of embedded services required with a farm product between urban and rural demands.