Market is the characteristic phenomenon of economic life. Price is a powerful regulator. Market in Economics refers to a group of buyers and sellers in sufficiently close contact with one another that exchange takes place among them. Market refers to a commodity.

The main forms of market are perfect market, monopoly, monopolistic competition and oligopoly.

The classification of market is based on the number of buyers and sellers of the commodity, the nature of the commodity produced by the sellers whether homogeneous or heterogeneous, degree of freedom in the movement of goods and factors of production state of knowledge on the part of both buyers and sellers, the size, differences in time, existence of substitutes of the goods produced and the condition of entry etc. a perfect market is featured by large number of buyers and sellers, homogeneous good, single price, free entry and exit, perfect mobility of factors of production, perfect knowledge and nil transport cost.

The difference between pure competition and perfect competition is only one of degree and not of kind. Under perfect competition, sellers and buyers are price takers. Perfect competition is a myth. The demand curve facing on individual seller is horizontal in shape.

ADVERTISEMENTS:

Monopoly is the opposite of perfect competition. Monopoly means single seller. There are no closer substitutes for the product the monopolist sells. Besides, there are strong barriers, economic or institutional, legal or artificial that prevents entry of other firms. The monopolist is a price maker. Under monopolistic competition characteristics, both of perfect competition and monopoly are found. The number of sellers is large. Products are heterogeneous. Price of the products is not uniform. Producers influence consumers through advertisement. Under oligopoly, there are few sellers. It is multiple monopoly or incomplete or imperfect monopoly. It is a form of imperfect competition. It is featured by interdependence among sellers, differential or perfectly identical products, group behavior, advertising or selling cost and indeterminate demand curve. Oligopoly may be pure or differentiated. It is of the greatest importance in the present century.

There has been a controversy regarding the price – determination of a good. According to old economists like Smith, Ricardo and Mill, cost of production (Supply) determines the price of a good. According to the Austrian economists like Manger, Wiser, Bohme Bawerk and Jevons, marginal utility (demand) determines the ‘price’. But each group has taken the one sided view of the pricing problem.

Dr. Marshall has synthesized both the views. According to Dr. Marshall, the price of a good is determined by both demand and supply just like two blades of a pair of scissors to cut a piece of paper. Both demand and supply are equally important.

The equilibrium price brings about a balance between demand and supply. If demand conditions or supply conditions change, then the equilibrium price and equilibrium quantity also change. Demand condition change due to various factors like change in income, taste, preference of the consumers etc. it is the change in the demand function. Supply conditions change due to the change in the price of labor. Raw materials, machinery etc. This is the change in the supply function.