MARKETS & MARKETS STRUCTURES
INTRODUCTION TO MARKETS The term market is derived fromthe latin word “Marcatus” which means merchandise or trade Market is a place where buyers and sellers meet together for the exchange of title of goods
Definition: “Market is a area or atmosphere of petential exchange” ------ Phillip Kotler “Market is not a geographical meeting place but as any getting together of buyers and sellers,in person, by mail, telephone, telegraph and inter net or any other means of communication” ------ Prof. Mitchel
MARKETS CLASSIFICATION
PRICE DETERMINANTS (Demand & Supply ) Price
Demand
Supply
50 40 30
100 120 150
200 180 150
20 10
200 300
110 50
Different Market Structures
Perfect Market A laarge number of buyers & sellers Homogeneous product Free entry and Exit Perfect Knowledge Indifference Non Existence of Transport costs Perfect mobility of resources.
Equilibrium of a firm under perfect competition It is a position where thefirm has no incentives either to expand or contrast its output. There are two condition for attaining euqlibrium by a firm. 1. Marginal cost must be equal to marginal revenue (MC=MR) 2. Marginal Cost curve should cut the marginal curve from the below
EQUILIBRIUM POINT IN PERFECT MARKET Marginal cost is the additional cost incurred for producing a additional product Marginal revenue is the addtional revenue when it sell one additional unit of output When a firm increases its output so long as its marginal cost become equal to marginal revenue When marginal cost is greater than marginal revenue the firm reduces its production. It is only point at the where MC=MR, the firm attains equlibrium Secondly marginal cost curve should cut the marginal curve from the below. If marginal curve cut the marginal curve from the above the firm is having scope to increase the output as the marginal cost curve slope downwards
EQUILIBRIUM POINT IN PERFECT MARKET It is only with the upwards slopping maraginal curve, the firm attains equilibrium. The reason is that marginal cost curve when raisingcuts the marginal revenue curvefrom the below
EQUILIBRIUM POINT IN PERFECT MARKET PL and MC represents Price level and Marginal Cost PL also represents marginal revenue, Average revenue and demand As marginal revenue, Average revenue and demand all are same in perfect competition to price level MC curve is U shapes curve cutting MR at R and T At point R MC curve cut the MR curve from the below. So it is not equilibrium. The downward slopping of MC curve indicates that the firm can reduces its cost of production by increasing output As the firm increases its output it will reach equilibrium at T. Here two conditions are satisfied. If the firm increases it output beyound this stage the MC is excess the MR. So losses occurs. So producer is not ready to increase the output after this point. So it is called equilirium point.
SHORTRUN EQUILIBRIUM POINT IN PERFECT MARKET
PRICING UNDER PERFECT MARKET Under perfect market there are large number of buyers and sellers with homogenous products No single seller can fix price and no buyer can influence the price An individual seller is only price maker not price maker. In perfect market the problem is only one thing i.e price making. No one can fix price the seller should adjust the output Marshall classified the time four kinds Very short period Short period Long period Very long period or secular period
PRICING DETERMINATION IN MARKET PERIOD The price determination in the short period called market price Market price is the determination by equilibrium between demand and supply Under this period goods are classified into 1. perishable products 2. non perishable products 1. perishable products Perishable products like Milk, Flowers, Vegetables etc These products supply will not increase in short span of time. And cannot be decreased also
PRICING DETERMINATION IN MARKET PERIOD
PRICING DETERMINATION IN MARKET PERIOD 2. Non-perishable products Non-perishable products like Cloths, pens, watches In very short period the supplt of non-perishable products cannot increased. Bur price decreases, their supply can decrease by preserving some stock If price falls too much the whole stock will be held back from the market and carried over to next market period The price below which the seller will refuse to sell is called reserve price
PRICING DETERMINATION IN MARKET PERIOD Non-perishable products
MONOPOLY The word monopoly is made up of two syallables, MONO and POLY. Mono means single and Poly means Seller Single person or a firm No close substitute Large number of buyers Price Maker Supply and Price Downward slopping Types of Monopoly Legal Monopoly Private Monopoly Government Monopoly Voluntary Monopoly
Limited Monopoly Unlimited Monopoly Single Price Monopoly Discriminating Monopoly Natural Monopoly
PRICING UNDER MONOPOLY Monopoly refers to a market situation where there is only one seller. He has complete control over the supply of a commodity. He is therefore in a position to fix any price. Undere monopoly there is no difference between firm and industry This is becuase the entire industry consists of a single firm The monopoly can fix the price or supply any one but he cannot fix both If he fixes the price, his output will be determined by the market demand for his commodity. If he fixes the output to be sold, the price for the commodity will be determined by its market.
PRICING UNDER MONOPOLY The market demand curve of monopist is downward slopping. Its corresponsing marginal revenue curve is also downward slopping But the MR curve always lies below the average revenue curve.
PRICING UNDER MONOPOLY The monopolist firm attains equilibrium when its marginal cost becomes equal to the marginal revenue. The always desiress to make maximum profits. He makes maximum profit when MC=MR He goes on increasing his output if his revenue exceeds his costs. But when the costs exceed the revenue, the monopolist firm incur losses. Hence the monopolist curtails his production. He produces up to that point where additional cost is equal to the additional revenue.The point is called equilibrium