PRICE DETERMINATION IN DIFFERENT MARKETS

UNIT -1: MEANING AND TYPES OF MARKETS

At the end of this Unit, you should be able to:

1. Explain the Meaning of Market in Economics.

2. Describe the key Characteristics of the Four Basic market Types Used in Economic Analysis.

3. Provide Explicit Real Examples of the Four Types of Markets.

4. Explain the Behavioural Principles Underlying these Markets.

SUMMARY

5. Economic goods are scarce in relation to their demand and have an opportunity cost. Unlike free goods, they are exchangeable in the market and command price.

6. Price connotes money-value i.e. the purchasing power of an article expressed in terms of money.

7. Value in exchange or exchange value, according to Ricardo, means command over commodities in general, or power in exchange over purchasable commodities in general.

8. Market is the whole set of arrangements for buying and selling of a commodity or service. Here buyers and sellers bargain over a commodity for a price.

9. The elements of a market are: buyers and 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.

10. Markets are generally classified into product markets and factor markets.

11. The factors which determine the type of market are: nature of commodity, size of production and extent of demand.

12. Markets can be classified on the basis of area, time, nature of transaction, regulation, volume of business and types of competition.

13. On the basis of area: markets are classified into four i.e. local, regional, national and international.

14. On the basis of time: markets are classified into four i.e. very short period or market period, short period, long period and very long period or secular period.

15. On the basis of nature of transaction: markets are classified into spot market and future market.

16. On the basis of regulation: markets are classified into regulated and unregulated markets.

17. On the basis of volume of business: markets are classified into wholesale and retail markets.

18. On the basis of competition: On the basis of competition we have perfectly competitive market and imperfect market. The imperfect market is further divided into monopoly, monopolistically competitive market and oligopoly market.

19. Total revenue refers to the amount of money which a firm realizes by selling certain units of a commodity.

20. Average revenue is the revenue earned per unit of output.

21. Marginal revenue is the change in total revenue resulting from the sale of an additional unit of the commodity.

22. Marginal revenue, average revenue and price elasticity of demand are uniquely related to one another

23. MR = AR × [(e-1)/e] Where e = price elasticity of demand.

24. Total revenue will be maximum where elasticity is equal to one.

25. If a firm’s total revenues are not enough to make good even the total variable costs, it is better for the firm to shut down. In other words, a competitive firm should shut down if the price is below AVC.

26. At the point of equality between marginal revenue and marginal cost, a firm will earn maximum profits.