Classification of Markets
Micro Economics Notes (Class 12 & B.Com)
Meaning of Market
The term ‘market’ originated from Latin word ‘mercatus’ which means which means merchandise, trade or place where business is conducted.
For a layman, the word ‘market’ stands for a place where goods and services are transacted.
But in broader sense, the term market also includes area of operations, volume of business, population of a country or organisation by which the exchange of goods is affected.
Classification of Markets
Market may be classified on various basis of which the most common basis are area, time, nature of transactions, regulations, volume of business, competition and position of sellers.
1) Classification of Markets on the Basis of Area covered
On the basis of area covered, markets are classified into four categories:
a) Local markets,
b) Regional markets,
c) National markets, and
d) International markets.
a) Local markets: Local markets mainly confine to locality which mainly deals in perishable commodities like vegetables milk, fruits, fish, flower etc.
b) Regional markets: Regional markets is wider than local market and cover a district or state and deals mainly and industrial and agricultural products.
c) National markets: National market cover national boundaries and mainly deals in durable and non-durable goods, industrial products, metals, agricultural produce.
d) International markets: In case of international market, the movement of goods is widespread throughout the world, making the whole world a single market. Apart from the product mentioned above, the precious commodities like gold and silver are traded in the international market.
2) Classification of Markets on the Basis of time
According to Professor Alfred Marshall, markets can be classified in four parts on the basis of time:
a) Very short-period market,
b) Short-period market,
c) Long-period markets and
d) Secular market.
a) Very short-period market: Very short-period market is one in which the supplies of a commodity are limited to the existing stock only.
b) Short-period market: Short period markets are for highly perishable goods of all kinds such as fish, vegetables, meat etc.
c) Long-period market: Such markets are mainly for consumer durable goods.
d) Secular market: Secular market is a very long period market where secular movements are recorded in certain factors like size of population, supplies of raw materials, capital supply etc over a period of time.
3) Classification of Markets on the Basis of nature of transactions
On the basis of nature of transactions, markets are classified into Spot and Future markers.
a) Spot markets: Spot markets refer to those markets in which after the completion of transaction, goods are physically delivered on the spot.
b) Future markets: Future markets refer to those markets in which after the completion of transaction, goods will be delivered in future and payment will be made in future.
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4) Classification of Markets on the Basis of regulations
On the basis of regulation, markets may be divided into Regulated markets and Unregulated markets.
a) Regulated markets: Regulated markets are those in which price, quality etc are statutorily regulated so as to put an end to unfair trade practices.
b) Unregulated markets: Unregulated or free markets are those where there are not such restrictions as regard to price and quality.
5) Classification of Markets on the Basis of Volume of Business
On the basis of volume, markets are classified into two parts: the wholesale market and retail market.
a) Wholesale markets: The wholesale market is one in which the commodities are bought and sold in bulk or large quantities. The dealers in this market are known as the wholesalers who act as an intermediary between the producer and the retailer.
b) Retail markets: Retail market, on the other hand, is one in which the commodities are bought and sold in small quantities. The dealers of this market are known as wholesalers who act as an intermediary between the producer and the retailer.
6) Classification of Markets on the Basis of Nature of goods
On the basis of nature of goods, markets can be commodity markets and financial markets.
a) Commodity markets: Commodity market deals in consumer durable goods, industrial products, bullions and precious metals etc.
b) Financial markets: Financial markets deals in financial assets such as shares, debentures, bonds, lending and borrowings of money, commercial papers etc. Financial markets are divided into two parts – capital market and money market. Capital markets deals in securities and money market deals in money, commercial papers and bills of exchange.
7) Classification of Markets on the Basis of the Position of Sellers
On the basis of position of sellers relating to products, markets are divided into Primary, Secondary and the Terminal market.
a) Primary markets: Manufactures of commodities constitute the primary market who sells the product to the wholesalers.
b) Secondary: The secondary market consists of wholesalers who sell the products in bulk to the retailers.
c) Terminal markets: The terminal market consists of Retailers alone who sell the products to the ultimate consumers.
8) Classification of Markets on the Basis of Competition
On the basis of competition, markets are classified into two broad categories:
a) Perfectly competitive markets, and
b) the Imperfect markets.
a) Perfect markets: In perfect market, a large number of buyers and sellers deal in homogenous product. In such market entry and exit of firms is free. But this type of markets hardly exists.
b) Imperfect markets: In imperfect markets, sellers sell heterogeneous products. In such market entry of new sellers is not free. Imperfect markets are further classified into Monopoly, Monopolistic Competition and Oligopoly.
To sum up, there are four categories of markets on the basis of competition: (VVI)
a) Perfect Competition
c) Monopolistic Competition
9) Classification of Markets on the Basis of Demand and Supply
On the basis of demand and supply, there can be Seller’s market and buyer’s market.
a) Seller’s market: When demand for goods in market exceeds supply, then such market is called seller’s market. In such a market, sellers are in driver’s seat.
b) Buyer’s market: When demand for goods in market is less than supply, then such market is called buyer’s market. In such a market, buyer’s are in driver’s seat.