Market and market structures

In short, markets can be classified according to certain structural characteristics that are shared by most firms in the market. Economists have names for these different market structures: pure competition¹, monopolistic competition², oligopoly, and monopoly.

An important category of economic markets is pure competition. This is a market situation in which there are many independent and well-informed buyers and sellers of exactly the same economic products. Each buyer and seller acts independently. They depend on forces in the market to determine price. If they are not willing to accept this price, they do not have to do business.

To monopolize means to keep something for oneself³. A person who monopolized a conversation, for example, generally is trying to stand out from⁴ everyone else and thus attract attention⁵.

The term market, as used by economists, is an extension of the ancient idea of a market as a place where people gather to buy and sell goods. Today, however, markets such as the world sugar market, the gold market¹ and the cotton market do not need to have any fixed geographical location. Such a market is simply a set of conditions permitting buyers and sellers to work together. 

Demand and supply

Economists define demand as a consumer’s desire or want, together with his willingness to pay for what he wants. When we exercise our choice, we do so according to our personal scale of preferences. In this scale of preferences essential commodities come first (food, clothing, shelter, medical expenses etc.), then the kind of luxuries which help us to be comfortable (telephone, special furniture, insurance etc.), and finally those non-essentials which give us personal pleasure (holidays, parties, visits to theatres or concerts, chocolates etc.). Law of Demand says that the demand for an economic product varies inversely with its price. if prices are high the quantities demanded will be low. If prices are low the quantities demanded will be high. Elasticity of demand is a measure of the change in the quantity of a good, in response to demand. The change in demand results from a change in price. Demand is inelastic when a good is regarded as a basic necessity4, but particularly elastic for non-essential commodities.

In economic theory, the term «supply» denotes the amount of a commodity or service offered for sale at a given price. Everyone who offers an economic product for sale is a supplier. The law of supply states that the quantity of an economic product offered for sale varies directly with its price. If prices are high suppliers will offer greater quantities for sale. if prices fall either locally or throughout the world, producers will reduce production.Overproduction of any commodity can also create difficulties, because it can lead to a glut on the market, which may cause prices to fall sharply. Supply is determined also by factors other than price, the most important being the cost of production and the period of time allowed to supply to adjust to a change in prices. The supply curve shows us how many units of a particular commodity or service would be offered for sale at various prices.

MARKET PRICE

Prices play an important role in all economic markets. Price is Money value of a good or service. In a market economy prices act as signals. A high price, for example, is a signal for producers to produce more and for buyers to buy less. price system is Economic system in which resources are allocated as a result of the forces of supply and demand.Prices, especially in a free market system, are also neutral. That is, they favour neither the producer nor consumer. Instead, they come about as a result of competition between buyers and sellers. The price system in a market economy is surprisingly flexible.Competition between buyers and sellersleads to market equilibrium — a situation where prices are relatively stable and there is neither a surplus nor a shortage in the market. In most economic systems, the prices of the majority of goods and services do not change over short periods of time. Prices perform two important economic functions: they ration scarce resources, and they motivate production. As a general rule, the more scarce something is, the higher its price will be, and the fewer people will want to buy it. Economists describe that as the rationing effect of prices. Prices may be either free to respond to changes in supply and demand or controlled by the government or some other (usually large) organisation.

Labour and capital

There are four major categories of labour that are based on the general level of skills needed to do any kind of job. These categories are unskilled, semiskilled, skilled and professional or managerial.

Unskilled labour. Workers who do not have the training to operate machines and equipment fall into³ the category of unskilled labour. Most of these people work chiefly with their hands at such jobs as digging ditches, picking fruit, etc.

Semiskilled labour. Workers who have mechanical abilities⁴ fall into the category of semiskilled labour. They may operate electric floor polishers, or any other equipment that calls for⁵ a certain amount of skill. 

Skilled labour. Workers who are able to operate complex equipment and who can do their tasks with little supervisions fall into the category of skilled labour. Examples are carpenters, typists, toolmakers.

Professional labour. Workers with high level skills such as doctors, lawyers and executives of large companies fall into the category of professional labour.

Most occupations have wage rate — a standard amount of pay given for work performed.

How these rates are determined can be explained in two different ways. The first deals with supply and demand, the second recognizes the influence of unions on the bargaining process.