In ordinary language, a market means a place where things are bought and sold. But in Economics a different meaning has been given to the term. Professor Chapman says “Economically interpreted the term ‘market’ refers not to a place but to a commodity or commodities and buyers and sellers of the same who are in direct competition with one another.” Thus we speak of cotton market, share market etc. There is a market for every commodity that has buyers and sellers, even though there is no specified place where they meet. All that is required to constitute a market therefore is a commodity that can be bought and sold some are willing to buy and others are willing to sell.
The buyers and the sellers can communicate with one another by words of mouth, by letter, telephone, cable, internet or by wireless, the method or place does not matter. The definition of the market points out two main features of an economic market. Firstly there must be a free competition among buyers and sellers. Secondly, as a result of this competition there must be competitive price. The more organized a market is, the greater is the tendency to the same price for the same thing at the same time through out the market, even if it is worldwide.
Perfect and Imperfect Market
On the basis of competition between the sellers and buyers of a commodity, market may be classified into two categories, namely Perfect Market and Imperfect Market.
Perfect market implies the following conditions:
(a) A large number of sellers and buyers
(b) Buyers know the prices charged by the different sellers of the commodity
(c) Only one price prevails in the market due to the competition between buyers and sellers.
But these conditions rarely exist in reality. The number of sellers or of buyers may be small and as a result the competition between them may not be free or perfect. When there are a small number of sellers, they can influence the price by selling more or less of the commodity. The buyers may also be smaller in number and they can also influence the purchase price by purchasing more or less of the thing. Different sellers may sell at different prices because each seller controls a large part of the total supply. The same is the true of the big purchasers. The buyers may be ignorant of the prices charged by the sellers or buyers may have preference for particular sellers. As a result the sellers can sell at different price than others. These conditions make market imperfect.
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