Definition of Market
A market is a point of contact, place or any means of communication whereby sellers and buyers can communicate with one another, to exchange goods and services at prices determined by the market forces.
Types of Markets
Markets can be grouped on the basis of the type of commodities purchased and sold or on the basis of the channel of movement of finished products from the producers to consumers, or on the basis of prices.
Types of market according to commodities sold in them
- Money market: Money market is the type of market for short term loan. It consists of institutions or individuals who either have money to lend or wish to borrow on a short term basis.
- Capital market: Capital market is a market for medium term and long term loans. It serves the needs of industries and the commercial sector. It comprises all institutions which are concerned with either the supply of or demand for long term loan.
- Consumer goods market: Consumer goods market is the type in which finished products ready for use by consumers are sold and bought.
- Primary products market: This is the type of market in which primary products in their raw forms are sold and bought.
- Factor market: This is the type of market in which the factors of production are sold and bought.
- Foreign exchange market: This is a market which deals with foreign exchange transactions and it involves the buying and selling of foreign currencies.
- Labour market: Labour market is the type in which workers and employers are in close contact for the purpose of rendering services.
- Stock exchange market: This is a market where investors can buy and sell existing securities like shares, stocks, debentures, etc. This is a market where those who are interested in the purchase of securities are brought into contact with the sellers.
Types of market according to channel of distribution
- Wholesale market: This is the type of market in which a trader called wholesaler buys commodities in large quantities from the manufacturer and sells in small quantities to the retailer.
- Retail market: This is the type of market in which a trader known as a retailer buys commodities from the wholesaler and sells in bits to the final consumers.
Types of market according to prices
The types of market based on the prices of commodities are grouped into two: perfect market and imperfect market.
1) Perfect Market: A perfect market may be defined as one in which buyers or sellers cannot influence the prices of goods and services. Perfect market is also called competitive market or perfect competition.
Conditions Necessary for a Perfect Market
- Homogeneous goods: The goods bought and sold in a perfect market must be homogeneous; that is, they must be identical. They must be of the same size, shape, weight, colour, etc. The goods must be the same in the eyes of the consumer.
- Free entry and exit: There is free entry into the market for new firms or persons and free exit for the existing ones.
- Large buyers and sellers: There is a large number of buyers and sellers, each of whom has no control over the prevailing prices.
- No preferential treatment: In perfect market all buyers must be treated equally. Also, sellers must not sell either below or above prevailing prices or show favouritism.
- Perfect knowledge: There must be a perfect information or knowledge about the price of the goods or services.
- Common price: In a perfect market, the commodity concerned bears the same price tag throughout the market.
- Portable goods: The goods to be sold must be easy to carry from one place to another; for where such goods are not portable, they will be sold at different prices.
- Easy transfer of factors of production: In perfect market, factors of production are transferred easily to where they are needed.
2) Imperfect Market: An imperfect market may be defined as the market in which prices of goods or services can easily be influenced by the sellers or buyers. Imperfect market is also called imperfect competition.
Conditions Necessary for an Imperfect Market
The conditions necessary for an imperfect market are directly opposed to those of perfect market. These conditions are:
- The goods are not homogeneous.
- There is no free entry and exit.
- There are few buyers and sellers.
- There is preferential treatment.
- There is no perfect information.
- There is no common price.
- Goods are not portable.
- Difficulties in the transfer of factors of production.
Types of Imperfect Market
- Monopoly: This is an imperfect market in which there is a single seller of a particular good or service.
- Monopolistic competition: This is a market where there is a large number of producers dealing in different products or services such that no product of one firm is seen as a perfect substitute for that of another.
- Duopoly: This is an imperfect market in which there are only two producers of the same commodity.
- Oligopoly: This is an imperfect market in which there are few producers or sellers of the same commodity.
- Monopsony: This is the type of market in which there is only one buyer for a product.