When we talk about a market we generally visualize a crowded place with a lot of consumers and a few shops. People are buying various goods like groceries, clothing, electronics, etc.
And the shops are also selling a variety of products and services as well. So in a traditional sense, a market is where buyers and seller meet to exchange goods and services.
In economics, we do not refer to a market as a physical place. Economists will describe a market as coming together of the buyers and sellers, i.e. an arrangement where buyers and sellers come in direct or indirect contact to sell/buy goods and services.
For example, the market for mobile will constitute all the sellers and buyers of mobile phones in an economy. It does not necessarily refer to a geographic location.
- In economics, the term market will refer to the market for one commodity or a set of commodities. For example a market for coffee, a market for rice, a market for TV’s, etc.
- A market is also not restricted to one physical or geographical location. It covers a general wide area and the demand and supply forces of the region.
- There must be a group of buyers and sellers of the commodity to constitute a market. And the relations between these sellers and buyers must be business relations.
- Both the sellers and buyers must have access to knowledge about the market. There should be an awareness of the demand for products, consumer choices, and preferences, fashion trends, etc.
- At any given time only one price can be prevalent in the market for the goods and services. This is only possible in the existence of perfect competition.
Classification of Markets
Now we have seen what is a market. Let us learn more about the classification of markets. Broadly there are two classifications of markets – the product market and the factor market. The factor market refers to the market for the buying and selling of factors of production like land, capital, labor, etc. The other classification of markets are as follows,
On the Basis of Geographic Location
- Local Markets: In such a market the buyers and sellers are limited to the local region or area. They usually sell perishable goods of daily use since the transport of such goods can be expensive.
- Regional Markets: These markets cover a wider are than local markets like a district, or a cluster of few smaller states
- National Market: This is when the demand for the goods is limited to one specific country. Or the government may not allow the trade of such goods outside national boundaries.
- International Market: When the demand for the product is international and the goods are also traded internationally in bulk quantities, we call it an international market.
On the Basis of Time
- Very Short Period Market: This is when the supply of the goods is fixed, and so it cannot be changed instantaneously. Say for example the market for flowers, vegetables. Fruits etc. The price of goods will depend on demand.
- Short Period Market: The market is slightly longer than the previous one. Here the supply can be slightly adjusted.
- Long Period Market: Here the supply can be changed easily by scaling production. So it can change according to the demand of the market. So the market will determine its equilibrium price in time.
On the Basis of Nature of Transaction
- Spot Market: This is where spot transactions occur, that is the money is paid immediately. There is no system of credit
- Future Market: This is where the transactions are credit transactions. There is a promise to pay the consideration sometime in the future.
On the Basis of Regulation
- Regulated Market: In such a market there is some oversight by appropriate government authorities. This is to ensure there are no unfair trade practices in the market. Such markets may refer to a product or even a group of products. For example, the stock market is a highly regulated market.
- Unregulated Market: This is an absolutely free market. There is no oversight or regulation, the market forces decide everything