Introduction

In economics, market is defined as any place where the sellers of certain particular goods and services meet with the buyers of the same goods and services and a transaction can take place amongst the two.

Any market has two primary aspects, which are demand and supply. Demand and supply are the most important concepts of a market economy.

Demand is defined as the amount of goods or services that consumers will readily buy at different prices within a given time period, during which factors other than the price are held constant.

Whereas supply is defined as the amount of goods or services that producers are ready to sell at different prices within a given time period, during which factors other than price are held constant.

In this answer we will be looking at both the demand as well as the supply side of the market. Hence we will consider both the producer and the consumers’ point of view. From the consumers point of view we will be looking at the concept of elasticity while from the producers’ point of view we will consider the market structure as well as the price and non-price competition that exists in it.

Market Structure

Interconnected characteristics of a market, such as the number and relative strength of buyers and sellers and degree of collusion among them, level and forms of competition, extent of product differentiation and ease of entry into and exit from the market. Four basic types of market structure are (1) Perfect Competition-Many buyers and sellers, none being able to influence prices (2) Monopoly-Single seller with considerable control over supply and prices (3) Oligopoly-Several large sellers who have some control over the prices and(4) Monopolistic-Large number of sellers sell differentiated products which are close substitutes for one another.

Perfect Competition- A perfectly competitive market is one in which there is a large number of buyers and sellers of a homogenous product and neither a seller nor a buyer has any control on the price of the product. A perfectly competitive market is assumed to have the following characteristic –

Large number of buyers and sellers- The number of sellers is assumed to be so large that the share of each seller in the total supply of a product is very small. Thus the firms are price-takers not price-makers.