In comman language market refers to a place or locality where a commodity or commodities are brought and sold
In economics,the market has no reference to a place
It refers to a commodity which is being brought and sold
Ex –wheat markek,vegetable maket,cottan market etc
Ia economics,the term market implies the following things-
(1)there should be buyers and salers-the buyer and salers may be many or few
or even one buyer and salers here the number is not criteria
(2)contact between buyer and salers –the buyers and salers should be in close
touch with each other they need not personally meet in particular place they
can be in touch trough there agents or through telephone etc
(3)same commodity-the buyers and salers should deal with same commodity
(4)there should be a price-for every commodity there should be a price
factors that determine the size of market
the size of market depends on several factors this can be divided into following
quality of product
general factors
quality of product
nature of demand :if the commodity is demanded throughout he country it will have national market if it has demand throughout the world it will have international market
gold silver wheat cotton etc will have national and international market
durability:if the commodity is durable it will have national and international market if the commodity is possible like milk,fruits ,vegetables etc.it will have local market
adequate supply:to have large markets the supplies of the commodity should be sufficient to meet the large demand if the supply of the commodity is small and cannot be increased it will have only small market
general factors:
transport and communication:speedy transport and quick communication expands the size o fthe market efficient and quick transport enables trades to sell and buy even in distant market
peace and political stability:stability in political condition and maintain of law are very essential for the growth of trade and industries.
Efficient banking system:trade requires credit efficient banking system provides such financial facilities required by trade and industries
(1)CLASSIFY THE MARKETS ON BASIS OF COMPETITION
Ans)markets are classified into perfect and imperfect market on the basis of competiton
(1)perfect competition:
if perfect competition exists in the market it is calle perfect competition market
The following are essential feauters of perfect competition
There should be large number of buyers and selers
The product should be of homogenous
There should not be any obstacles for firms to enter the industry or leave the industry
The buyers and sellers should have perfect knowledge of the prize in the market
The transaction between buyers and sellers should take place on basis of price only
There should not be any transport cost
(2)Imperfect Competition:competion becomes imperfect if any one of the feauters are condition if perfect competiton is not satisfied
The main feauters of imperfect competition are
The number of sellers in market are small
The product is not homogenous
The buyers do not have knowledge about the price in market
The existence transport cost
Absense of free mobility of market of production
EXPLAIN HOW PRICE IS DETERMINED UNDER PERFECT COMPETITION
Ans)the perfect competition has the following feauters
There must be large number of buyers and sellers
The product should be homogenous
There should not be any obstacles for firms to enter industry or leave industry
The buyers and sellers should have perfect knowledge of price in market
The transaction between buyers and sellers should take place on the basis of price only
There should not be any transport cost
Equlibrium Price:
Price is determined on basis of demand and supply the law of demand states demand will be more at a lower price when a price of a commodity falls demand extends and when the price rasis demand contracts
(1)WHAT DO YOU UNDERSTAND BY DISCRIMINATION MONOPOLY
(2)UNDER WHAT CONDITIONS IS PRICE DISCRIMINATION POSSIBLE
Ans)price discrimination means changing different price for the same commodity to different buyers are different prices in different market at the same time
The aim of monopolist in practicing price discrimination is to maximize principle on which discrimination price are determined
He divides the market according to the elasticities of demand
He charges lower price in thse market where the elasticities of demand is higher
In the market where elasticity of demand is low the charges higher price
The marginal revenue in which market should be equal to the marginal cost of produation of the total output
(3) DEFINE MONOPOLY AND EXPLAIN PRICE DETERMINATION IN MONOPOLY WITH THE HELP OF A DIAGRAM
Ans) The word “MONOPOLY” is a latin term. Mono means single and Poly means seller.thus monopoly is a form of marketing in which there is only one seller of the commodity
Monopoly exists under the following conditions
There should be a single seller or single producer
There is no distance between firm and industries
There is no close substitution
A monopolist can either fix the price or output
PRICE DETERMINATION UNDER MONOPOLY:
The object of monopoly firm is assumed to be profit maximisaton.the price output and analyse as in the case of perfect competiton is also under monopoly.
Explanation: in the figure, the average revenue and marginal revenue currency are slopping downwards from left to right.the marginal revenue currency lies below the average revenue currency the cost currencies under monopoly are in ‘u’ shape the mc currency passes hrough the minimum curve passes through minimum point of ac curve.the monopolist profit will be maximum when mc curve is equal to ac curve.the monopolist firm attains equlibrium when mc=mr.the condition is satisfied at point’e’ and the equilibrium output is o,m.
(3)DEFINE DEMAND AND EXPLAIN THE LAW OF DEMAND
Ans) Other factors remaining same,if the price of one commodity increases then the demand of good decreases and vice versa.This law of demand was secured by marshall.this law can be explained from the following table
From the above table it is very clear that as price increases demand decreases and vice versa.the same thing can be explained with the help of diagram.in the above diagram on x axis we have taken quantity demand and on y axis we have taken price.if we plot the table on the diagram then we will demand curve.this demand curve is slopping downwards from left to right.in the case of same commodity demand curve goes upward from left to right.it means that as price raises demand raises and when price falls demand also falls.the following are exceptions on demand
Giffen paradox or giffen goods: there are some commodities which are called inferior goods.giffen pointed out that in case of English worker the low demand does not apply.example:bread and meat. Giffen observed that workers spend a major portion of their income on bread and only a small portion meat.meat is more costly,but less aseal then bread.when price of bread increases there reduce d expand on meat and purchased bread.
Prestige goods: Costly goods like gold,diamond etc are called prestige goods.clearly rich people these goods for the sake of prestige in the society.hence rich people buy more of these goods as price increases and vice versa.
Speculationn:When the price of commodity rices the group of speculators expand that it will raise furtur therefore they buy more of that commodity
Trade cycles: When there is a economic dipression in trade cycles then demand may not increase even the price will reduce.
Main feauters of law of demand:
Inverse relationship:the law of demand states the inverse relationship between price and demand
Other things remain same:several factors other than price influence demand therefore in the law of demand it is assumed exept the price other thigs remain same.
Pattern of change: The law of demand explain the pattern of change in demand as a result of change in price.
LAWS OF DEMANDING MARGINAL UTILITY
DIMINISHING MEANS DECREASING AND UTILITY MEANS SATISFACTION
LAW OF DIMINISHING MARGINAL UTILITY:
The law of diminishing marginal utility explains the relationship between the quality of good and utility of a consumer goes in increasing his stock the additional utility derived from an additional unit declines .this law can explained with the help of following diagram
Explanation: As the units of commodity increases , the marginal utility derived from an successive unit tends to diminish
The total utility increases till the fifth unit and remains constant
Marginal utility at that level becomes zero
For the 6th and 7th units the total utility declines and marginal utility becomes –ve
Any furthur addition of consumption afer zero marginal utility causes –ve marginal utility
Explanation: In the above diagram on x axis we have shown units and on y axis total utility and marginal utility are shown
The utility curve slopes upwards towards right indicating the utility increase with the consumption of additional units the tu is max at 5th level of unit and from the 6th unit level it starts declining.the marginal utility curve has downwards slope the 5th unit of commodity gives zero,while 6th & 7th unit gives –ve utility.
Assumptions:
All the commodities should be of homogenous ie,same in quantity,quality,size,color etc
There should not be any time gap between the consumption of commodities
Commodities should be divided into small units of the convienence of consumption and to measure marginal utility.
Exceptions:
The law of diminishing marginal utility is not applicable to durable goods.as this good are used over a long period of time
This law is not applicable to the complementary good where more than one commodity is used to satisfy the want
In case of individual this law is not applicable if th egood cannot be divided in small unit it is not possible to measure the mu
Importants :
The law of diminishing marginal utility is very useful to finance minister in formulating taxation policy
The law of diminishing marginal utility helps in knowing the difference between value in use and value in exchange.
The law of diminishing marginal utility is useful in determining the optimum level of consumption of product or commodity
Elasticity Of Demand:
The mathematical relationship with the price and demand is called elasticity of demand.the law of demand explains the relationship between price and demand .but elasticity of demand explains how much change in price loads to how much change demands.
The elasticity of demand is of three types they are
a) price elasticity of demand
b) gross elasticity of demand
c) income elasticity of demand
a) Price elasticity of demand :
The price elasticity of demand refers to the degree of demand for the responsivness of demand for the commodities to give change in its price.different types of elasticities are discussed
1)Perfectly elasticity demand:
If no change in price leads to an infinite change in demand is said to be perfectly elastic demand if the infinitively elastic demand is a horizontal straight line to the x axis it can be shown in the below diagram
2)Perfectly inelastic demand:
even a grade fall in price or increase in price does not lead any change in demand is known as perfectly inelastic demand.the following diagram shows that increase in price or decreasse in price doesnot lead in any raise in demand or fall in demand .it means demand remains constant
3) Unitary elastic demand:if a profonate change in demand is called unitary elastic demand the below diagram shows the profoniate change in price is equal to the profoniate change demand
4) Relatively elastic demand:
when a profoniate change in demand is called relatively elastic demand the below diagram shows changes in price
5) Relatively in elastic demand:when a greater profoniate change in price will lead to lesser profoniate change in demand
