What is a market? Different types of markets and difference between them.
The market is the place where both buyers and sellers interact and involved in buying and selling activities of goods and services. The two parties involved in a transaction are called seller and buyer. The seller sells goods and services to the buyer in exchange for money. There has to be more than one buyer and seller for the market to be competitive.
There are mainly four types of markets which are explained below:
1. Perfect Competition Market:
Perfect competition is the market structure where there is a large number of buyers and sellers producing homogeneous products selling at the price fixed by the interaction of demand and supply or market mechanisms. There is no government intervention under this market as goods and services can be freely transferred from one country to another. The firms are considered price takers because they do not have control over the prices as the price is fixed by the market equilibrium that is the interaction between demand and supply.
2. Monopolistic Competition Market:
Monopolistic competition is the market structure in which many buyers and several sellers producing similar products but not perfect substitutes, and have little control over the prices. Under a monopolistic competition market, there are low entry and exit barriers. The firm faces a downward-sloping but relatively elastic demand curve.
3. Monopoly Market:
A monopoly is a market structure in which there are a large number of buyers and a single seller producing unique services and selling the price fixed by themselves. The firms are considered as price makers under this market as the firms have strong control over the price and also determine the price of goods and services themselves. The firms have high entry and exit barriers. The firm faces a downward-sloping but more inelastic demand curve than the oligopoly market.
4. Oligopoly Market:
Oligopoly is a market structure in which there are a large number of buyers but few sellers producing differentiated products selling at the price fixed by the firms themselves.