MARKETMARKET

““A market is an area over which buyers and A market is an area over which buyers and sellers negotiate for the exchange of a well sellers negotiate for the exchange of a well defined commodity”defined commodity”

MARKETMARKET

Essentials of a MarketEssentials of a Market A well defined commodity which is bought A well defined commodity which is bought

and soldand sold Presence of buyers and sellersPresence of buyers and sellers A place where commodity is to be brought and A place where commodity is to be brought and

soldsold Direct competition between buyers and sellersDirect competition between buyers and sellers

MarketMarket

Markets can be classified on different basis i.e:Markets can be classified on different basis i.e:

(a)(a) According to period of timeAccording to period of time

(b)(b) According to locationAccording to location

(c)(c) According to nature of commodityAccording to nature of commodity

(d)(d) According to nature of competitionAccording to nature of competition

MARKETMARKET

Markets according to CompetitionMarkets according to Competition

Competition means the conditions or the Competition means the conditions or the environment prevailing in the market under environment prevailing in the market under discussion.discussion.

MarketPerfect competition Imperfect competition

Monopoly

Monopolistic

Oligopoly

PERFECT COMPETITIONPERFECT COMPETITION

CharacteristicsCharacteristics

(1) Very large number of buyers & sellers(1) Very large number of buyers & sellers

In a perfectly competitive market the number In a perfectly competitive market the number of buyers and sellers is very large; so large of buyers and sellers is very large; so large that an individual buyer or an individual that an individual buyer or an individual sellers can not effect the market price.sellers can not effect the market price.

PERFECT COMPETITIONPERFECT COMPETITION

(2) Perfect substitutes(2) Perfect substitutes

Products of all firms are perfect substitutes of Products of all firms are perfect substitutes of each othereach other

Homogenous productsHomogenous products Preference can be given only on the basis of Preference can be given only on the basis of

priceprice

PERFECT COMPETITIONPERFECT COMPETITION

(3) No attachment or association(3) No attachment or association

Consumes have no attachment/association Consumes have no attachment/association with the product of a particular firmwith the product of a particular firm

If violated, then the existence of more than one If violated, then the existence of more than one price in the market will be possible.price in the market will be possible.

PERFECT COMPETITIONPERFECT COMPETITION

(4) Perfect mobility(4) Perfect mobility

Perfect mobility of factors of production Perfect mobility of factors of production geographically and among occupationsgeographically and among occupations

No restriction on entry and exit of firmsNo restriction on entry and exit of firms

PERFECT COMPETITIONPERFECT COMPETITION

(5) Perfect knowledge(5) Perfect knowledge Buyers have perfect knowledge of the price Buyers have perfect knowledge of the price

prevailing in the marketprevailing in the market No producer can charge any other price but the No producer can charge any other price but the

the market pricethe market price Only one price can prevail in the marketOnly one price can prevail in the market A firm in perfect competition is therefore a A firm in perfect competition is therefore a

price taker.price taker.

REVENUE CURVESREVENUE CURVES

Total revenueTotal revenue

Total revenue is the total Total revenue is the total amount of sale proceeds or the total receipts of amount of sale proceeds or the total receipts of the firm.the firm.

If a firm producing cloth sells one hundred If a firm producing cloth sells one hundred meters of cloth in the market at Rs. 50 per meters of cloth in the market at Rs. 50 per meter, the sale proceeds or the receipts of the meter, the sale proceeds or the receipts of the firm will be Rs. 5000 (total revenue).firm will be Rs. 5000 (total revenue).

REVENUE CURVESREVENUE CURVES

TR = Price * Quantity soldTR = Price * Quantity sold P * QP * QTR= 50 * 100 = 5000 Rs.TR= 50 * 100 = 5000 Rs.

TRTR denoted total revenue denoted total revenuePP denotes price denotes priceQQ means quantity sold in the market means quantity sold in the market

REVENUE CURVESREVENUE CURVES

Marginal revenueMarginal revenue Marginal revenue is the Marginal revenue is the

addition made to total revenue by a one unit addition made to total revenue by a one unit increase in the volume of sales by the firm. For increase in the volume of sales by the firm. For example, if a firm sells 100 meters of cloth at example, if a firm sells 100 meters of cloth at Rs. 50 per meter, TR= 5000 Rs. If it increases Rs. 50 per meter, TR= 5000 Rs. If it increases its volume of sales from 100 to 101 i.e. by one its volume of sales from 100 to 101 i.e. by one meter, the total revenue will be 5050 Rs. and meter, the total revenue will be 5050 Rs. and the marginal revenue will be 50 Rs.the marginal revenue will be 50 Rs.