MARKET (Micro Economics

CPT General Economics

Chapter 4 Unit-1
By Prof. Monika Maithani

MEANING AND
TYPES OF MARKET

Market is the whole set of arrangement for

buying and selling of commodity or service.

 Buyers

& Sellers;
A product or service;
Bargaining for a price;
Knowledge about market conditions; and
One price for a product or service at a given time.

Area
Time
Nature of transaction
Regulation
Volume of business
Competition

Area
Local market

Perishable &
Bulky goods

Regional market

Semi-durable
goods

National market

Durable &
Industrial goods

International
market

Precious
commodities

Time
Very Short
Period Market

Perishable

Short Period
Market

Only variable factors

can change to
increase price

Long Period
Market

Supply can be
increased by
installing new plant
or machinery,
output is adjusted
accordingly.

Very Long Period

Market

Change in factors
like size of
population, capital
supply, supply of
raw materials, etc.

On the basis of
Nature of
Transactions

Spot Market

Goods physically
transacted on the
spot

Future Market

Contracts of a
future date

On the basis of
Regulation

Regulated Market

Transactions are
statutorily regulated to
avoid unfair practices
e.g. Stock Exchange

Unregulated Market or
Free Market

No restrictions on the
Transactions

On the basis of
Volume of
Business

Whole-sale
Market

Commodities are
bought and sold in
bulk or large quantities

Retail Market

Commodities are sold

in small quantities

On the basis of
Competition

Perfect
Competition

Imperfect
Competition

Many

Homogenous

Few

Differentiated

Single

Unique

Seller

Product

Many

Homogenous

Perfect
Competition

Differenti
ated

Many

Few

Homogen
ous OR
Differenti
ated

Monopolistic
Competition

Oligopoly

Single

Unique or
Extremely
Differentia
-ted

Monopoly or
Monopolistic
Market

Assumptions

Perfect
Competition

Monopolistic
Competition

Monopoly

Oligopoly

Number Of Sellers

Many

Many

Single

Few

Product

Homogenous

Differentiated
(Close Substitute)

Extremely
Differentiated
(Unique and no
close substitute)

Homogenous/
different

Price Elasticity of
Demand of a Firm

Infinite

Relatively Elastic

Relatively Inelastic

Kinked/Curved

Degree of Control
Over Price

None

Some

Medium

Some

Nature Of
Advertisement

None

Competitive

Informative

Competitive

TR = P*Q
E.g. Firm sells 100 units Rs.5 each
TR = 100*5 = Rs.500

AR = TR/Q = P*Q/Q = P
Thus, AR = P
E.g. TR = 500, Q=100
AR =500/100 = Rs. 5

MR =

TR/

Q or for 1 unit of output MRn =TRn TRn-1.

MR = AR * e-1/ e
If e= 1, MR AR* 1-1/1
Thus MR = 0
And If e> 1 ; MR = +ve
And If e< 1 ; MR = -ve

Firm Should not produce if,

TR < TVC

TR Total Revenue
TVC Total Variable Cost
In Short Run, TC = TVC + TFC
TFC is not relevant for decision making

It will be profitable for the firm to expand output whenever

MR >MC