Classwork Series and Exercises {Economics – SS2}: Market Structure

Economics, SS2, Week 5

Topic: Market Structure

Content

1. Definition of Market
2. Types of Market
3. Perfect Market and Imperfect Market

Meaning of Market

Market is a point of contact, place or any means of communication where sellers and buyers can communicate with one another, to exchange goods and services at a particular price.

It is a medium that allows buyers and sellers of a specific good or service to interact with order to facilitate an exchange. The price that individuals pay during the transaction may be determined by a number of factors, but price is often determined by the forces of supply and demand.

An actual or nominal place where forces of demand and supply operate, and where buyers and sellers interact (directly or through intermediaries to trade goods, services or contracts

A market is one of the many varieties of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services (including labor) in exchange for money from buyers.

It can be said that a market is the process by which the prices of goods and services are established. The market facilitates trade and enables the distribution and allocation of resources in a society. Markets allow any trade-able item to be evaluated and priced. A market emerges more or less spontaneously or may be constructed deliberately by human interaction in order to enable the exchange of rights of services and goods.

Types of Market

Market can be categorized based on the type of commodities sold and purchased. They are:

1. Consumer goods Market: Consumer goods market is the type in which finished goods ready for used by consumers are sold and bought.
2. Capital Market: It is a market for medium term and a long term loan; it serves the need of industries and the commercial sector.
3. Primary Products Market: Primary products are the type of market in which primary products in their raw forms are sold and bought.
4. Labour Market: This is the type of market which workers and employers are in close contact for the purpose of rendering services.
5. Stock Exchange Market: This is a market where investors can buy and sell existing securities like shares, stock, securities etc.
6. Factor Market: This is the type of market in which the factors of production are sold and bought
7. Money Market: It is a market where short term loan e.g bank.

Types of market according to channel of distribution

1. Wholesale Market: This is the market where people called wholesaler’s buys goods in bulk from the producer and sell to the retailers in small quantities.
2. Retail Market: This is the type of market in which the traders known as retailer buys goods from the wholesalers and sell in unit to the final consumers.
3. Types of market according to prices: This is the type of market based on the prices of commodities are grouped into two, which are perfect and imperfect market.

PERFECT MARKET

Market structure characterized by a very large number of buyers and sellers of a homogeneous (no differentiated) product. Entry and exit from the industry is costless, or nearly so.
Information is freely available to all market participants, and there is no collusion among firms in the industry. It is difficult to identify a perfect market in reality; however, lumber and agriculture provide close approximations in the United States.

A perfect market is a market where the buyers or sellers cannot determine or influence the price of goods and services. It is known as a competitive market.

Characteristics/ conditions necessary for a Perfect Market

The following conditions/characteristic must be present for a perfectly competitive market structure to exist.

1. There must be many firms in the market, none of which is large in terms of its sales.
2. Free entry and exist: firms should be able to enter and exit the market easily.
3. Homogeneous product, each firm in the market produces and sells non differentiated or i.e goods sold must be identical, must be of the same shape, size, color etc.
4. Perfect knowledge: all firms and consumers in the market have complete information about prices, product quality, and production techniques.
5. Common price: In a perfect Market, the commodity sold must have the same price throughout the market.
6. Portable goods: The goods sold must be easy to carry from one place to another,
7. No preferential treatment: All buyers must be treated equally; sellers are not allowed to show favoritism in the process of selling of goods.
8. Easy transfer of factors of production: In a market like this, factors of production can easily be transferred to places where they are needed.
9. Large buyers and sellers: The number of sellers and buyers are high and therefore no one has the ability to influence the prices of goods and services.

Test and exercise

1. A market where buyers and sellers cannot influence the prices of goods and services is referred to as (a) imperfect market (b) retailer market (c) wholesaler market (d) perfect market.
2. A point of contact, place or any means of communication where sellers and buyers transact business is (a) market (b) village (c) Town (d) abroad.
3. All are the conditions for a perfect market except (a) large buyers and sellers (b) homogeneous product (c) there is preferential treatment (d) portable goods.
4. Type of market where medium term loan and long term loan are sold is called (a) factor market (b) capital market (c) labor market (d) capital market.
5. The market where goods are sold in small quantities to retailer is called (a) wholesale market (b) producer market (c) retailer market (d) capital market

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