What is a Market | Commercial Applications - Class 6 PDF Download

Market is the heart and soul of modern economic life. Without market, producers’ and consumers’ activities hardly make any sense. In common parlance, market is assumed to be a place where goods are bought and sold. But in economics, the term ‘market’ does not refer to a specific place. Rather, it is a mechanism through which buyers and sellers come into contact with each other and buy and/or sell goods at mutually agreed prices.
Main features of a market include:

• Buyers and Sellers: Buyers and sellers must come into contact with each other for a market to exist. It is only after the contact between the buyer and the seller, that a transaction takes place. 
• Area: You can easily find a market place nearer to a human settlement. But in today’s world, the market is not limited to a particular place. Today, in the age of Internet, we have a rapidly growing online market which is not limited to any geographical area. A buyer can place order to buy a good online. So modern Market exists physically and virtually. 
• Commodity: The transaction between buyer and seller has to be over some good or service. So a commodity becomes the integral part of a market. 
• Different forms of Competition: Forms of market depends on the degree of competition among the sellers selling the goods, where the degree of competition it self is determined by the inter relationship of among the goods and services sold by different sellers as well on number of sellers present in the market. 
• Money transaction: Money is the mediums of exchange in the modern day world. Consumers pay money to the seller to buy goods as services in the market. So money and market are inseparable.

Basis of Different Market Forms

Different forms of market can exist on the basis of some distinguished characteristics.

Some of these characteristics are:

(a) Number of Firms: Number of firms in a market indicates the degree of control of a firm on the price of a commodity. For example, if there is a large number of firms competing against each other, a single firm supplies just a miniscule part of market supply and hence cannot influence the market supply and consequently the price significantly. Similarly, if there is only one firm in the market, it becomes the sole determinant of the market supply and therefore, exercises a great degree of control over the price. 

(b) Ease of Entry and Exit of the Firms: If the firms can easily enter a particular market or can leave the market without much loss, the price will be stable and profits will be just normal in the long run. In case there are restrictions on entry of new firms, the degree of control of existing firms increases and the possibility of earning higher profits also increases as the firms have a lesser degree of competition in such a case. 

(c) Degree of Product Differentiation: It simply means how unique the product offered by a particular firm is. The greater the degree of uniqueness (or higher degree of product differentiation), the greater is the control exercised by that firm over its pricing decisions. In case, the goods offered by different firms are homogeneous, the individual firms lose their control over the market in price determination.

Different Forms of Market Structure

Based on the above mentioned characteristics, we can classify different markets in the way as shown in the following chart

On the basis of degree of competition among sellers, we can say that while monopoly does not have any competition, on the other hand perfect competition has maximum degree of competition. Oligopoly and monopolistic competition lie between these two extreme market forms.