MARKET

In words of Cournot, a French economist, economists understand by the term market not any particular market place in which things are bought and sold but the whole of a region in which buyers and sellers are in such free intercourse with one another that the price of the same goods tends to equality easily and quickly.

CLASSIFICATION OF MARKET
Markets may be classified as: On the basis of area as local, national, and world market. On the basis of time, as market price on any particular day or moment, shortperiod price, long-period price, or secular markets covering generation; and On the basis of nature of competition obtaining therein as perfect markets and imperfect markets.

PERFECT MARKET
In economics, a perfect market is defined by several conditions, collectively called perfect competition. A market is said to be perfect when all the potential sellers and buyers are promptly aware of the prices at which transactions take place and all the offers made by other sellers and buyers, and when any buyer can purchase from any seller and conversely. Under such a condition, the price of a commodity will tend to be the same all over the market. Thus the prevalence of the same price for the commodity at the same time is the essential characteristics of a perfect market.

CONDITIONS OF A PERFECT MARKET

I. Free and perfect competition: - no restriction either on the side of buyers or on sellers. II. Cheap and efficient transport and communication: - Same price for commodity will not rule if the information about changes in price cannot be quickly transmitted or if the commodity cannot be cheaply and speedily transported. Hence, efficient transport and communication system is essential for a perfect market. III. Wide Extent: - A perfect market is considered synonymous with a wide market. In order to have a wide market, a commodity should be portable, durable, and gradable and should have a wide demand.

On the assumption of Perfect Competition, and some technical assumptions about the shapes of supply and demand curves, it is possible to prove that a market will reach equilibrium in which supply for every product or service, including labour, equals demand at the current price. This equilibrium will be a Pareto optimum, meaning that nobody can be made better off by exchange without making someone else worse off. Share and foreign exchange markets are commonly said to be the most similar to the perfect market. The real estate market is an example of a very imperfect market. Note that the conditions for Perfect Competition mean that a perfect market cannot be unregulated, since these preconditions for market function cannot at the same time be products of the market, yet must be provided somehow.

Another characteristics of a Perfect Market is normal profits, just enough to induce enough participants to stay in the market to satisfy customer demand. The least efficient producer may have very small profits, and be unable, for example, to pay dividends to shareholders, while more efficient producers have larger profits. This attribute of perfect markets has profound political and economic implications, as many participants assume or are taught that the purpose of the market is to enable participants to maximize profits. It is not. The purpose of the market is to efficiently allocate resources and to maximize the welfare of consumers and producers alike. The market therefore regards excess profits, or economic rents, as a signal of inefficiency that is of market failure, which is to say, not achieving a Pareto optimum.

THE FEATURES OF PERFECT MARKET

(A) The number of buyers and sellers assumed to be unlimited. Every buyer and the firm in the individual capacity will be quite ineffective to the change in price of market due to their abundance. Every firm and the buyer is the negligible part of their total lots. (B) All the firms produce and bring the same producer to the market to sale. The product difference may be the cause of price difference but if the goods are the same, the price level should also be the same (C) It is also assumed that both the buyers and the sellers are in possession of perfect knowledge about the market. Obviously mutual exploitation by realizing as paying different price will not be possible.

(D) In this market entry of new firms and exit from the market by old firm is free without any restriction. Open market, through self-adjustment forces of demand and supply keep the prices on the same point permanently (E) The factors of production are assumed to be perfectly mobile from one to the other market. This feature of the perfect market keeps the cost same and thereby the price

BASIC STRUCTURAL CHARACTERISTICS

Generally, a perfectly competitive market exists when every participant is a "price taker", and no participant influences the price of the product it buys or sells. Specific characteristics may include: Infinite buyers and sellers- An infinite number of consumers with the willingness and ability to buy the product at a certain price, and infinite producers with the willingness and ability to supply the product at a certain price. Zero entry and exit barriers A lack of entry and exit barriers makes it extremely easy to enter or exit a perfectly competitive market. Perfect factor mobility In the long run factors of production are perfectly mobile, allowing free long term adjustments to changing market conditions. Perfect information - All consumers and producers are assumed to have perfect knowledge of price, utility, quality and production methods of products. Zero transaction costs - Buyers and sellers do not incur costs in making an exchange of goods in a perfectly competitive market.

Profit maximization - Firms are assumed to sell where marginal costs meet marginal revenue, where the most profit is generated. Homogenous products - The qualities and characteristics of a market good or service do not vary between different suppliers. Non-increasing returns to scale - The lack of increasing returns to scale (or economies of scale) ensures that there will always be a sufficient number of firms in the industry. Property rights - Well defined property rights determine what may be sold, as well as what rights are conferred on the buyer.

PRICE

DETERMINATION

UNDER

PERFECT

COMPETITION
Demand and supply factors together determine the price. Seller is a PRICE TAKER. Prof. Marshall considering the time element of supply distinguishes three periods to determine the price viz. MARKET PERIOD OR VERY SHORT-RUN SHORT-RUN LONG-RUN

1. MARKET PERIOD
A very short-period

 Supply is very limited and fixed that the scale of production cannot be changed The entry and exit of the firms cannot happen Supply curve in this period perfectly inelastic Price in this period is determined entirely by the demand conditions Market price is determined by the equilibrium between demand and supply in a market period Nature of the commodity determines the nature of the supply curve.

Y D S

D
P D P E D P E E

D
D O M X

2. SHORT -RUN
Short-run is defined as a period of time in which atleast one input is fixed. Supply can be increased or decreased only by increasing the variable outputs. Supply in the short-run is elastic when compared to the market period-hence the short-run supply curve is less steep than the market period supply curve.In the short run, perfectly-competitive markets are not productively efficient as output will not occur where marginal cost is equal to average cost (MC=AC). They are allocatively efficient, as output will always occur where marginal cost is equal to marginal revenue (MC=MR).

3. LONG-RUN
In the long run, perfectly competitive markets are both allocatively and productively efficient. In perfect competition, any profit-maximizing producer faces a market price equal to its marginal cost (P=MC). This implies that a factor's price equals the factor's marginal revenue product. It allows for derivation of the supply curve on which the neoclassical approach is based. This is also the reason why "a monopoly does not have a supply curve". The abandonment of price taking creates considerable difficulties for the demonstration of a general equilibrium except under other, very specific conditions such as that of monopolistic competition.