Professional Documents
Culture Documents
Meaning of market
It refers to the whole area in which buyers and sellers are in free
competition with one another.
Features of market
• commodity to be brought and sold
• buyers and sellers of the commodity
• area, in which buyers and sellers live, and
• Close contact between buyers and sellers.
Classification of market
1. on the basis of competition –
• perfect competition market
• monopoly
• imperfect competition market
a) monopolistic b) oligopoly c) duopoly
2. On the basis of area –
• local market
• regional market
• national market
• international market
3. On the basis of time element
• very short period market
• short period market
• long period market
• very long period market
4. On the basis of legality
• open market
• black market
5. On the basis of quantity of the commodity
* Wholesale market
* Retail market
6. On the basis of commodities and services
* Commodity market
* Factor market
1
A perfectly competitive market is defined as a market in which
no individual firm can influence the market price on its own.
Features
1. Large number of buyers and sellers – The number is so large
that no single buyer or seller can affect the market. It implies
that individual output of every seller is the negligible fraction
of total output, so no one of them is capable of influencing
the market, so they have to accept the price prevailing in
the market.
2. Homogenous product – Goods produced by different firms
are homogenous so that all buyers are willing to pay the
same price for the product of all producers of a good.
3. Freedom of entry and exit of firms – There are no obstacles
in the way of new firms joining the industry and existing
firms leaving the industry. This ensures that there are
neither above normal profits nor losses by any firm in the
long-run.
4. Perfect knowledge of market conditions – This means that all
producers and consumers are fully informed about the
market. So, no consumer is prepared to pay a price higher
than what is being charged in other parts of the market.
5. Perfect mobility of factors of production – mobility of factors
from one industry to another industry, which gives them
more remuneration.
Meaning of Monopoly
3
Causes responsible for emergence of monopoly
Features
1. Large no of sellers and buyers – As there are large no. of
sellers and buyers , so the individual firm or buyers is
incompetent to affect the price of the industry. Every firm
4
has its own price and output policy and does not bother
much for the reactions of rival firms.
2. Product differentiation - The products of different firms are
not homogeneous but are close substitutes. Products are
differentiated from each other in terms of brand name,
colour , shape, quality , and type of service etc. Due to
product differentiation, firms enjoy partial control over price,
and have a independent price policy.
3. Free entry and exit – Firms are free to join and leave the
industry at their own will. A new firm may enter the industry
and produce close substitutes, without significantly affecting
the market. Free entry and exit imply zero profit in long run.
4. Selling cost – Expenditure on advertisement are made to
persuade buyers to buy a particular brand of the product in
preference to other brands.
5. Imperfect knowledge of market conditions – Due to product
differentiation, it become difficult to compare the price of
different products. Sometimes, the products of different
sellers are really the same, but consumers may come o know
a particular brand name more than others.
5
Returns to scale
Meaning – “ returns to scale relates to the behavior of total output
as all inputs are varied in same proportion and it is a long-run
concept”.
6
d) Financial economies – A large sized firm has high credit-
rating. It is in a position to secure huge loans at low
rate of interest.
e) Economies of purchase and sale – on account of its
large size firm can purchase large quantity of raw
material at low price. It also succeeds in selling goods
by paying low rate of commission.
External economies of scale
These are the economies which are industry specific.
These are available to all the firms in the industry when
the scale of operation of the industry as a whole expands.
a) Development of the means of transport and
communication, post and telegraph office.
b) Spread of banking and credit facilities
c) Facilities for advertising, insurance etc.
d) Information relating to new invention, new market,
prices etc, helps in cutting down unnecessary cost.
e) Setting up of subsidiary industries, training schools for
laboures etc.
TEST II
Q.1. a) What is the sum of households consumption expenditure
and households savings called ?
b) Are services rendered by govt. included in national income ?
Give reasons.
c) State two sub-sectors of secondary sector.
d) Give one alternative name of expenditure method.
e) What are subsidies ?
5
f) Do you include the value of retained goods for self consumption
in the national income ?
Q.2. Differentiate between factor payment and transfer payment
giving examples.
3
Q.3. State four components of domestic capital formation.
Explain any one of them.
3
Q.4. Are the following included in the category ‘ factor income
earned by the normal resident from abroad’ . Give reason in
support of your answer :-
* Salary received by an Indian employee in a foreign embassy in
India.
* Hotel expenses done by a foreign tourist at delhi.
* Rent received by an Indian by renting his home to a foreign
embassy. 3
Q.5. State the component of domestic factor income. Explain any
one of them..4
Q.6. Give an outline of estimating national income by expenditure
method. 4
Q.7. Given private income, how do you find out national income.
3
Q.8. Which of the following is factor payment? Why and why not ;-
8
* Interest paid on loan taken by a production units
* Interest paid on loan taken by a household consumer.
4