Economics · Chapter 2
Study notes aligned to the official NEB syllabus.
In everyday language a market means a particular place where goods are bought and sold. In economics the term has a wider meaning. A market is any arrangement or system by which buyers and sellers of a commodity come into contact with one another, directly or through agents, to settle the price and carry out exchange. Physical presence in one place is not necessary, since buyers and sellers can deal through telephone, internet or brokers. This chapter explains the classification of markets and the revenue concepts that go with them.
The essential features of a market are the existence of a commodity, the presence of buyers and sellers, a price, and some means of communication between the two sides. Markets are classified in several ways, but the most important classification in price theory is by the degree of competition. On this basis markets are divided into perfect competition and imperfect competition, the latter including monopoly, monopolistic competition and oligopoly.
A perfectly competitive market is one in which there are a very large number of buyers and sellers, all dealing in a homogeneous product, so that no single buyer or seller can influence the price. Its main features are a large number of buyers and sellers, a homogeneous product, free entry and exit of firms, perfect knowledge of market conditions, perfect mobility of factors of production, and the absence of transport cost. Under these conditions a single uniform price rules in the market, and each firm is a price taker that must accept the price fixed by the industry.