In economics,
the concept of market is related to the factors like time, place, period,
demand, supply, etc. Therefore, the concept of market in economics is explained
from the perspective of time limit, in terms of area, the nature of the good
and on the basis of competition. The development of market is not stable rather
it is a dynamic stream. There grow changes in the thoughts and ideas of the
buyers and sellers in the market because of many basic characteristics.
It can be expected that after studying this chapter, we will be able to-
·
Illustrate the concept of market
·
Describe the method of development of market
·
Explain the characteristics of a perfect competitive
market
Market
Mr. John is a job holder. He went to New Market in the first
week of the month of May to buy the necessary goods for his household.
Scrutinizing the prices of fish, vegetable, rice, sugar, oil, salt, etc.,
he bought these. The traders sold their goods to John in exchange of money.
Here it can be said that the place to buy and sell goods and products is the
market. And bargaining is the way of the market. The shopper is the seller and John
is the buyer. Here, the place of the market is New Market.
In economics, market does not stand for just a specific
place for buying and selling. Rather, market is a process. A process where
goods and services are bought and sold between the buyers and the sellers in
different ways for example buying and selling online, buying and selling over
phone or fax. In these types of market, many types of goods can be bought and
sold, or some specialized goods can be exchanged. For example, buying cement
over phone.
Markets can be different as per the type of the product. For
example raw materials market, market for jute, market for paddy and rice, labor
market, market for tea, gold market, share market, etc. On the other hand,
there are very short term markets, short term markets and long term markets
which are decided on the basis of the duration of time.
The price of the goods is decided through bargain between
the buyer and the seller. This system is known to be the rule of price. The
buying and selling of the goods is dependent on this price. Once the price is
decided, the buyers and sellers buy and sell products and services. The demand
and supply forces decide the price.
According to the French economist Kurnat, "the
economists did not mean any specific place for buying and selling goods by the
world market. Rather they mean goods from any region, where through free
communication between the buyers and sellers, there grows the tendency for the
price to become equivalent easily and quickly."
Market and Its Development
Realizing the significance of time along with the
significance of demand and supply, Professor Marshall first began the
discussion about the market. Earlier, many economists had the fixated idea
that, to decide the price of the goods, knowing about the supply of the goods
was enough, there was no significance of the demand of the goods.
Professor Marshall, for the first time managed a successful
combination between the two conflicting opinions and said that, to decide for
the price of the goods, both demand and the supply are equally important. But
it is also correct that, although demand and supply are equally important to
decide the price of goods, but, for the change of time also, there occur
differences in their influences on price. Therefore, there are three basic
matters at work for the concept of market, demand, supply and time.
In the market system, at a specific time, by different
mediums, through bargaining the buyer and the seller fix the price of the good
or the service and exchange them, this is basically known as market. In the
perspective of this idea, in the course of time, due to different situations,
different types of market have been originated. And the market system has
developed. The origination of market have been different over the time.
1. Very Short-Term
Market: Where the supply of the goods is stable at a fixed time. Even if
the demand rises or falls, the supply of the goods cannot be changed. The raw
material market can be taken as an example. In this type of market, within the
short time in the morning, even when the demand or the prices of the goods rise,
the supply of the goods cannot be changed.
2. Short Term Market:
When there is a change in the demand, the supply may be able to respond a
little. In this market, the farm, remaining the same size, can adjust the
changeable factors and bring change to the supply to some extent. On the other
hand, if the demand of the goods falls, the farm can still produce or if the
demand in the market is even worse, can even stop producing for some time.
Therefore, in the short term, because of any change in the demand of the goods,
supply can respond to an extent.
3. Long Term Market:
With any change in the demand, any kind of change is possible in the supply. In
this case, any production institution can bring a complete change in the size
and factors of production. If the demand is growing for a long time, the
production organization tries to bring a balance combining the demand and the
supply by establishing new machinery and changing the usage of the other
factors.
In terms of different places, the concept of market is
discussed as local market, national market or international market. On the
other hand, the concept of market is also discussed in terms of the nature of
the product. e.g.- raw materials market, fish market, jute, tea or rice market,
mango market, labor market, finance market, capital market, woven cloth market,
fruit market, etc.
There are some basic factors associated with the idea of
market-
Farm: When a business institution produces only one
good, it is called a farm then.
Industry: An industry means such an economic
institution under which, there may be numerous farms. Here, once the
farms settle on a price and production, there is no opportunity to change the
price and production. That is, the price and production of the farms
incorporated in an industry get fixated.
Factor Market: Any basic material used in the
production is known as factor. In other words, whatever is used in the
production system is known to be factor. The process in which factors are
bought and sold between the buyer and the seller is termed as the factor
market. The selling and buying of the factors depend on the price of the
factors. The price of the factors is decided by the demand and supply of the
factors.
Finance Market: The process in which money is
exchanged, that is known as finance
market. The rate of interest is discerned by the equalization of the demand
and supply of money.
Labor Market: The process in which labor is bought
and sold is the labor market. The demand and supply of labor decide the
wage of labor. In this case, the laborer or the laborer’s union and the
employer of the labor, these two sides decide the wage of labor or the price of
labor.
Capital Market: In the capital market loan is
exchanged. Financial institutions exchange loans.
The market structure has developed on the basis of
competition. In the next section this topic will be elaborately discussed.
Nature and Features of Market
We have been introduced to the type of the market in the
earlier section with respect to the time, place or size of the market. Now we
will discuss the total market structure in the light of competition. Actually,
this type of analysis is more important for economics. The types of the market
on the basis of competition are: 1. Perfectly Competitive Market, 2. Monopoly
Market, 3. Duopoly Market, 4. Oligopoly Market, 5. Monopolistic
Buyers' Market, 6. Monopolistic
Buyers' Competitive Market, 7. Oligopsoni Market, 8. Duopsoni Market, etc.
Very briefly some ideas about a number of markets like these are given below.
Perfectly Competitive Market
Perfectly competitive market is a system of market where
numerous buyers and sellers buy and sell similar kind of products. No buyer or
seller can change the price of the good once it is decided by the demand and
supply in the market. The demand of one buyer or the supply of one seller is an
insignificant part of the market. Therefore, one or very few numbers of buyers
or sellers cannot influence the market of the similar types of goods. So, the
buyer or seller has to comply with the price that has been fixated in the
perfectly competitive market.
Characteristics of Perfectly Competitive Market
Let us take a look at the characteristics of the perfectly
competitive market.
1. Numerous buyers and sellers: There are numerous
buyers and sellers of a good in a perfectly competitive market.
2. The unit of the good is similar: The goods
considered in a perfectly competitive market are similar or of the same
quality. From the perspective of size or quality, one unit cannot be
differentiated from another. The units of the goods which are the same
according to their making and quality, but still can be differentiated, they
are known as similar goods. For example - pen, rice, shirt, pant, etc.
3. The buyer and the seller are fully acknowledged about
the market: If the market system is perfectly competitive, the buyer
and the seller, in that case are fully aware of the qualities of the unit of
the good and the price.
4. The free entry and exit of the farms in the industry: In
an industry under the perfectly competitive market, a farm can enter
freely in the long run, and if necessary, can leave the industry. There is no
impediment to that.
5. No external influence: There is no external or
governmental influence on the setting of production or price in the perfectly
competitive market. To sum up, government does not create any influence by
taxation, giving subsidies, rationing.
6. Full dynamism of factors: There is free movement
of factors in the perfectly competitive market. There is no obstacle in
the movement of any of the factors including the labor factor. Due to the
dynamism of factors among the industries, the price of the factors remains
the same everywhere.
7. The producer takes the initiative to minimize the cost
at a fixed price: The main objective of the perfectly competitive
farm is to earn the highest profit at the lowest cost. Although the farm tries
to take the profit to the highest at the given cost, in the long term, the
industry earns the normal profit. It has to be kept in mind that when the total
cost and the total income are the same, that is said to be the normal profit.
8. Freedom of decision making: Freedom is enjoyed in
the perfectly competitive market regarding deciding for the price of the
farm and amount of production. On the other hand there is no conflict or treaty
between the farms included in the industry. Therefore, there is no problem to
accept a decision in the market.
9. Average Revenue (AR) and marginal Revenue (MR): In
a perfectly competitive market, no particular buyer or seller can change
the price. Because they are the insignificant parts of the market and the buyer
and the seller have to comply with the price of the similar goods once it is
decided by the demand and the supply.
 |
| Amounts of production |
In the picture, the horizontal axis shows the production and
the vertical axis shows the cost and return. In the perfectly competitive
market, OP is AR=MR=P at a fixed price, which is parallel to the horizontal
axis.
10. Unit
of the produced good is divisible: In different markets, different amounts of similar
goods are produced. Each of the farms produces the goods dividing them in small
parts. Therefore, it can be said that the market of the produced goods is
divisible.
End
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