1. Meaning of “Market” in Economics
- Origin: The word “Market” comes from the Latin word Mercatus, which means “trade, merchandise, or a place of business.”
- Ordinary Meaning vs. Economic Meaning:
- In Ordinary Language: A market means a specific physical place or building where buyers and sellers gather (e.g., Choithram Mandi or Treasure Island Mall in Indore).
- In Economics: A market refers to the entire network or mechanism through which buyers and sellers of a commodity come into contact with one another (directly or indirectly through phone, internet, apps, or brokers) and determine the price of that commodity!
- Example: When you sit in your bedroom and order shoes on Myntra, or buy shares on Zerodha (NSE/BSE), there is no physical shop — yet it is a 100% valid Economic Market!
Standard Definitions of a Market
- Antoine Augustin Cournot (Most Famous Definition):
“Economists understand by the term ‘Market’, not any particular marketplace in which things are bought and sold, but the whole of any region in which buyers and sellers are in such free intercourse with one another that the prices of the same goods tend to equality easily and quickly.”
- Prof. Frederic Benham:
“A Market is any area over which buyers and sellers are in such close touch with one another, either directly or through dealers, that the prices obtainable in one part of the market affect the prices paid in other parts.”
- Chapman:
“The term market refers not necessarily to a place, but always to a commodity and the buyers and sellers who are in direct competition with one another.”
2. Five Essential Elements (Characteristics) of a Market
For a market to exist in Economics, 5 essential elements must be present:
The 5 Essential Pillars of an Economic Market
1. Commodity
A Good or Service
Wheat, Gold, Shares, or Software
➕
2. Participants
Buyers & Sellers
Both parties must exist to trade
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3. Communication
Close Contact
Face-to-face, phone, or internet
➕
4 & 5. Area & Price
Region & Price
Exchange happens at an agreed price
- A Commodity or Service to Trade: In Economics, we don’t just say “the market” — we say the Wheat Market, the Gold Market, the Labour Market, or the Smartphone Market.
- Existence of Buyers and Sellers: Without both buyers (demand) and sellers (supply), no trade can happen.
- Contact / Communication Between Buyers and Sellers: They may meet physically in a bazaar OR connect digitally via mobile apps, websites, emails, or stock exchanges.
- An Area / Region (Scope of Operation): Not a single shop building, but the entire local, national, or global region over which demand and supply forces operate.
- A Price: Exchange of goods and services takes place at a price determined by market forces.
3. Classification of Markets in Economics
Economists classify markets on 6 major bases. Memorize this master chart for your DAVV exam:
| Basis of Classification | Types of Markets Under This Basis | Easy Explanation & Examples |
|---|---|---|
| 1. On the Basis of Area / Geography | a) Local Market b) Regional Market c) National Market d) International (Global) Market |
• Local: Perishable/bulky goods sold within one city/village (Fresh Milk, Green Vegetables, Ice, Bricks). • Regional: Sold within a specific state/region (Rajasthani Safa/Turbans, Indori Sev). • National: Sold across all of India (Hindi Textbooks, Amul Butter, Tata Salt). • International: Traded worldwide (Gold, Silver, Crude Oil, iPhones). |
| 2. On the Basis of Time (Alfred Marshall) | a) Very Short Period (Market Period) b) Short Period Market c) Long Period Market d) Very Long (Secular) Period |
• Very Short Period: Supply is 100% fixed (cannot be increased even by 1 unit — e.g., fresh fish or morning milk). Demand alone sets the price. • Short Period: Supply can be increased slightly by working existing machines overtime. • Long Period: Firms can build new factories and install new machines (Normal Price is determined). • Very Long Period: Population, technology, and tastes all change over decades. |
| 3. On the Basis of Nature of Transactions | a) Spot (Cash) Market b) Future (Forward) Market |
• Spot Market: Goods are delivered and paid for on the spot immediately (e.g., buying groceries). • Future Market: Contract is signed today to buy/sell at a fixed price on a future date (e.g., Commodity Futures / Share Derivatives). |
| 4. On the Basis of Volume of Business | a) Wholesale Market b) Retail Market |
• Wholesale: Goods sold in huge bulk quantities by manufacturers/wholesalers to shopkeepers (Siyaganj Wholesale Market). • Retail: Goods sold in small quantities directly to final consumers (D-Mart, local Kirana shop). |
| 5. On the Basis of Government Regulation | a) Regulated Market b) Unregulated (Free) Market |
• Regulated: Strictly controlled by government rules/boards (Krishi Upaj Mandi, Stock Exchange under SEBI). • Unregulated: Free from special price/rule controls. |
| 6. On the Basis of Degree of Competition (Most Important!) | a) Perfect Competition b) Imperfect Competition (Monopolistic Competition, Oligopoly, Duopoly) c) Pure Monopoly |
• Perfect Competition: Infinite buyers & sellers, identical product, single price. • Imperfect Competition: Differentiated products or few big sellers (Soaps, Toothpaste, Telecom). • Monopoly: Single seller with zero close substitutes (Indian Railways). |
4. Classroom Activities 1 & 2 (Matching & Observing Real Markets)
(As prescribed in the DAVV BBA Syllabus — Unit 5, Activity 1 & Activity 2)
Activity 1: Matching Real Products & Services with Market Structures
| Product / Service Given by Faculty | Appropriate Market Structure | Basis / Reason for Selection |
|---|---|---|
| 1. Indian Railway Services | Monopoly (State Monopoly) | Single Seller (Government of India) operating passenger train tracks across India with no direct railway competitor. |
| 2. Local Vegetable Market (Sabzi Mandi) | Closest to Perfect Competition | Hundreds of vegetable vendors and thousands of buyers selling nearly homogeneous (identical) potatoes, tomatoes, and onions at almost the same prevailing mandi rate. |
| 3. Mobile Telecom Networks (Jio, Airtel, Vi, BSNL) | Imperfect Competition (Oligopoly) | Dominated by a few giant sellers (3–4 players) where one company’s tariff hike immediately influences the others. |
| 4. School Books / Cafes / Toothpaste Brands | Imperfect Competition (Monopolistic Competition) | Many sellers selling similar but differentiated products (different publishers/brands, packaging, and prices). |
Activity 2: Local Market Observation Report
- Market Observed: Local Smartphone Retail Market vs. Vegetable Mandi in Indore
- Vegetable Mandi: High number of buyers & sellers; homogeneous product (1 kg loki/potato is the same across stalls); sellers are mostly Price Takers around the daily mandi price (~Perfect Competition).
- Mobile Store / Online Platform (Amazon/Flipkart): Differentiated brands (Apple, Samsung, Xiaomi, Vivo); heavy advertising; sellers have some control over price based on camera/RAM features (Imperfect Competition — Monopolistic Competition / Oligopoly).
💡 DAVV Exam Tip
Question (10 Marks): “What do you understand by the term ‘Market’ in Economics? Explain the classification of markets on various bases.”
- Start by contrasting the Ordinary Meaning (a physical place) with the Economic Meaning (entire mechanism/network of buyer-seller contact) and quote Cournot’s definition.
- Present the 6-Category Classification Table (Area, Time, Transaction, Volume, Regulation, and Competition)!