Market

Place which can be physical and virtual where the buyer and seller meet and exchange goods
and services at a certain monetary value.

Types of market

1. Perfect competition – Large number of buyers and sellers (Hawt Bazaar and share
market). There is no restriction and barrier in the market. No penalty for exiting the
market. Products exchanged are homogeneous. The information regarding the
products and the prices are clear and known to buyer and seller. Perfect mobility in
the market.
2. Imperfect competition. Firm makes normal profit and abnormal profit is not possible.
2.1. Monopolistic competition - large number of buyer and seller and selling
differentiated products.
2.2. Oligopoly – Small number of sellers, it also has selling of differentiated
products (Airlines, mobile phones, cold drinks).
3. Monopoly – one single seller and no close substitute available (Indian Railways, Oil,
Electricity).

Market structure

Decreasing competition

Competition

Competition refers to the competitive market structure. Competition is directly proportion to

number of sellers.

Competitiveness of a market structure refers to the extent to which individual firm can
influence the power. Less power of firm to influence the market – more the competitive is
market structure.
Perfect competition – As per Prof. Leftwich  A market where there are i) many firms ii)
selling identical products iii) with

Perfect competition: Price determination

Normal profit – Able to meet all cost i.e., fixed cost and variable cost. If normal profit is not
maintained then the business can not sustain and they have to exit.

Abnormal – Profit over above the normal profit. Total revenue is higher than the cost. The
cost of producing the last unit is equal to the revenue received from selling the last unit i.e.,
marginal cost = marginal revenue.

 Price is not determined by seller or a firm

but buy the industry (Price mechanism)

Importance of time in perfect competition