Markets and market structures

In an ancient time a market was a place where people gather to buy and sell goods. Today, market Is a set of arrangements by which buyers and sellers are in contact to exchange goods and services. So, market is the institution through which buyers and sellers interact and engage in exchange.

Markets may be national and local in scope. Markets for many manufactured goods are international or global. There are also markets for the factors of production - land, labour, capital.

A market exists whenever and wherever one or more buyers and sellers can negotiate for goods and services.

Economists classify markets according to conditions that prevail in them. They determine market structure, or the nature and degree of competition among firms operating in the same market.

Economists have names for these different market structures. They are Pure Competition, Monopolistic Competition, Monopoly and Oligopoly.

Pure Competition is a market situation in which there are many independent and well - informed buyers and sellers of exactly the same economic products.

Monopolistic Competition is a market In which many firms sell simitar but not identical products. Thus, product differentiation separates Monopolistic Competition from Pure Competition. Monopoly is a market situation in which there is only one seller. Oligopoly is a market dominated by a few large firms.

DEMAND

Demand, it may be said, Is the desire for a commodity plus the ability and willingness to buy It.

In economic theory, demand means the amount of a commodity or service that economic units are wining to buy, or actually buy, at a given price. Demand is indicated by our willingness to offer money for particular goods or services. The Law of Demand says that the demand for an economic product varies inversely with its price. In other words if prices are high the quantity demanded will be Sow. if prices are low, the quantity demanded will be high. More people can buy an item at a tower price than at a higher price.

Thus, demand is an important factor in determining prices.

Obviously, demand Is not only influenced by price, but also by many other factors, such as the incomes of the demanders and the prices of substitutes

The demand curve is the graphical representation of the demand function

It should be noted that demand may be elastic or inelastic.

Demand is called elastic if a small change in price has a relatively large effect on the quantity demanded.

Demand is called inelastic if a change in price has a relatively small effect on the quantity demanded.

It is necessary to distinguish between demand and quantity demanded Demand describes the behaviour of buyers at every price. The term "quantity demanded" makes sense only in relation to a particular price.

SUPPLY

In the world of business supply means the amount of a commodity or service that producers are willing to sell in the market under various conditions.

Economists want to know how much of a certain economic product sellers will supply at each and every possible market price. Supply may be defined as schedule of quantities that shows how much of a product setters will supply at different prices. Everyone who offers an economic product tor sale is a supplier.

In economics the relationship of supply and price is expressed by the Law of Supply The Law of Supply says that the quantity of an economic product offered for sale varies directly with its price. Suppliers will offer greater quantities for sate at a higher price and less at a lower price.

Supply, it may be said, is determined and influenced by price. But it is also determined by such factors as the cost of production and the period of time allowed to supply to adjust to a change in prices.

To calculate costs a business must know what inputs in what combinations it needs to produce its product and how much those inputs cost. Costs are determined by input prices and technologies of production. In economic theory costs are divided into several different categories. Supply and price are relat in what is called the supply function. The graphical representation of supply function is the supply curve. It shows the positive relationship between the price and quantity of a good supplied during a given period.

PRICES

Price is all around us. You pay rent for your apartment, tuition for your education, and fee to your doctor or dentist.

Prices play an important role in all economic markets, if there were no price system, it would be impossible to determine a value of any good or service. Buyers and sellers use prices as signals to communicate their wants and then exchange money for goods and services. A high price, for example, is a signal for producers to produce more and for consumers to buy less. A low price is a signal for producers to produce less and for consumers to buy more. The price system in a market economy is surprisingly flexible. It can adjust to changes quickly.

In a market economy prices are determined by the forces of supply and demand.

The Law of Demand describes the relationship between prices and the quantity of goods and services that would be purchased at each price.

The Law of Supply describes the relationship between price and the quantity of goods and services that would be offered for sale at each price.

The interaction of supply and demand results in the establishment of an equilibrium, or market price. In economic markets buyers and sellers have exactly the opposite hopes and intentions. The buyers come to the market larger to pay low prices. The sellers come to the market hoping for high prices.

Prices perform two important functions: they ration scarce resources, and they motivate production.