In this article we will discuss about:- 1. Meaning of Market 2. Importance of Market 3. Classification 4. Characteristics 5. Relation between Business Firms and Market.


  1. Meaning of Market
  2. Importance of Market
  3. Classification of Markets
  4. Characteristics of a Good Market
  5. Relation between Business Firms and Market

1. Meaning of Market:

The popular meaning of the term ‘market’ refers to the place where goods are bought and sold against the price consideration between the buyers and the sellers. But from the point of view of Economics, the market refers not to a place but to a commodity car commodities and buyers and sellers, who are in direct competition with one another.


Again, the modern concept of Market in the world of business includes not only the buyers, sellers, and the commodities but also the potentialities and prospects of buyer-seller meet. In essence, a market is commodity-oriented as well as service-oriented.

2. Importance of Market:

Market is an important social institution.

Its impor­tance can be understood in the following ways:

1. Reciprocal benefits:


The buyers can get their goods for the satisfaction of their wants and the sellers also get their market for their merchandising operations.

2. Incentive to producers:


The goods are produced for marketing i.e. selling to the consumers. In absence of any market, the goods cannot be sold. The existence of a market provides incentive to the manufacturers to produce the goods.

3. Generation of employment:

The activities of repeated buying and selling of goods and services in a market call for the services to be ren­dered by different people. This way, a market creates opportunities of employment to people in various capacities like dealers and agents, etc.

4. Index of economic situation:


The economic condition of a country can be gauged by the presence of a market. A country possessing an interna­tional or global market for its products and/or services is considered as an economically advanced one in the world of business. Similarly, a firm having excellent ‘market standing’ is seen with awe and respect by the competitors.

5. Supply vs. demand adjustments:

The existence of a market creates demand for goods and services. Certain raw materials like cotton, jute, etc. have seasonal supplies but their demands are regular and continuous. An organised market for than ensures adjustments between the demand and supplies and stabilisation of prices over a long period.

3. Classification of Markets:


Businessmen and economists differ in their approaches to the classification of markets.

Taking all the viewpoints, we can identify the following types or clas­sification of market:

1. Geographical area:

From the viewpoint of area covered a market can be local, regional and international. A local market has a very limited area and generally for perishable daily necessary goods like fish, vegetables etc. A regional market covers a particular region of a country.


Such regional classification is found in a large country. India, for example, is divided into four regions, east, west, north and south, for all practical purposes. A national market covers the entire area of a country. An international market means extension of market in other countries.

2. Unit of sale:

Market is commonly classified on the basis of unit of sale. For example, wholesale market and retail market. The unit of sale in wholesale market is big, while in retail market it is small and sometimes very small. The price of the same commodity differs in wholesale and retail markets.

3. Periodicity:


Economists classify markets from the viewpoint of time and as such there are four types of markets:

(a) Very short-period:

This is a market for perishable goods and the goods have to be sold out by the sellers in a short time. The supply cannot be adjusted with the demand,

(b) Short-Period:

This is a market for goods with a limited stock. The supply can be adjusted with the demand to some extent but not fully,

(c) Long-period:


In such a market the supply can be adjusted with the demand by changing the scale of production.

(d) Very long-period:

In such a market, the length of the period is so long that very big changes take place to affect the supply and the demand, e.g. change in technique of production, change in population, change in tastes etc.

4. Nature and degree of competition:

In a free economy country there is a competition in the market which may be either perfect or imperfect and accordingly we get perfect and imperfect markets.


A market is perfect when sane conditions are satisfied, e.g:

(a) There are large number of sellers and buyers;

(b) The products of the sellers are identical;

(c) Each buyer and each seller has perfect knowledge of the market;

(d) Each seller has equal access to the factors of production; etc.

When one or more of the conditions are absent the market is imperfect.


Market can be further classified according to the degree of imperfection. The worst situation is when there is a monopoly (one seller) or a monopsony (one buyer).

5. Methods of transactions:

Generally in a market there are ‘spot’ transactions. The main characteristic of a spot transaction is that the goods exist aid the buyers and the sellers do the transactions on the basis of sane agreed terms and conditions. A market where spot transactions take place is called an ordinary market. But there are some organised markets where ‘futures’ transactions also take place.

Under futures tran­sactions goods do not exist but transactions are made by samples and by descriptions or by both. Goods which satisfy some conditions can be brought under organised markets. There are different types of organised markets like money market, commodity market and capital market.

6. Position of sellers:

Markets can be further classified according to the position of sellers. Accordingly we find primary, seco­ndary and terminal markets. The agricultural or industrial goods are sold by the producers to some middlemen like wholesalers.


This is the primary market. In the secondary market the middlemen like the wholesalers sell the goods to another group of middlemen called the retailers. Ultima­tely the goods are sold in the terminal market to the actual consumers.

4. Characteristics of a Good Market:

A good market should satisfy the following characteristics:

(1) It shall be wide enough so that there is existence of a steady and continuous demand for the commodity under sale. If there is no steady demand there cannot be steady and conti­nuous supply of the commodity. The suppliers can hold the stock when there is excess supply to adjust it with the demand.

(2) There shall be facilities far movement of the goods so that the supply of a commodity nay reach the market easily, regularly and timely.

(3) The commodity must be capable of being identified and preferably be represented by sample or by description.


(4) The title to or ownership of goods must pass easily from the seller to the buyer with minimum formalities.

(5) There shall be freedom of entering into contracts by the buyers and the sellers among themselves for executing transactions of sale.

5. Relation between Business Firms and Market:

Business invol­ves repeated buying and selling activities of goods and services, The goods and services are produced by the business firms not for their own use or consumption but for others who do not produce than. So, a market cones to play its role in the buying-selling activities.

Unless there is a market, there is no necessity to produce the goods and services. Thus, market assures an importance and provides a mechanism or platform for change between the firms which produce and sell, and the others who buy and consume. The main function of a business firm is to find out, create, and retain its market.