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Meaning of Market and Factors Affecting the Size of a Market

Updated on June 1, 2014
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Meaning of Market

Market occupies a unique position in the modern complex monetary organization. Adam Smith in his ‘Wealth of Nations’, rightly points out, that division of labor is limited by the extent of the market. Market helps the producers to take basic economic decisions on what to produce, and how much to produce. Market significantly affects the producers, consumers, and the various other sections of the society.

Prof. Wicksteed has remarked, “The market is the characteristic phenomenon of economic life. The constitution of markets and market prices are the central problems of economics.”

In ordinary language, “market” refers to a place where commodities are bought and sold. However, in economics, “market” has no place but for a particular commodity which is being bought and sold. For example, we speak of a cotton market, tea market, wheat market, gold market, share market and so on.

In economics, “market” refers to a group of buyers and sellers taking part in the exchange of a commodity. The buyers and sellers may be scattered within a country or may be abroad. However, there must be some contact by means of airs, meetings, published price lists, or through telephone, telegram or other means of communication.

According to Cairncross, a market is “simply the network of dealing in any factor or product between buyers and sellers.

Features of a Market

The above definitions point out the four basic features of a market.

1. Consumers and sellers

The existence of buyers and sellers. The number of buyers and sellers may be large or small.

2. Contact

Existence of some contact among the buyers and sellers. The contact may be direct or indirect.

3. A Commodity

There is commodity to deal with. In the case of different commodities, there will be different markets.

4. A Price

There should be a price for the commodity that is bought and sold in the market.

Factors Affecting the Size of a Market

The size or extent of a market depends upon various factors. These factors can be broadly divided under two heads.

  1. Nature of the commodity and
  2. General conditions

Nature of the commodity

(a) Wide demand

A commodity, which is in universal demand, will have a wide market. The classic example is fuel oil. On the other hand, a commodity, which is local in character, will have a limited market. For example: regional films.

(b) Durability

A commodity, which is durable in nature, will have a wide market. Goods like gold, silver, etc., have very wide markets since such commodities can be preserved for a long time and can be transported without any damage. On the other hand perishable commodities like vegetables, flowers and milk have only limited markets. However, the development of processing facilities, refrigeration and airlifting has greatly increased the size of the market for perishable goods also.

(c) Portability

Another pre-requisite for a wide market is that the commodity should be easily portable. It must be small but possess a high value. Goods like machines and cotton textiles are easily portable and so they command wide markets. On the other hand, bricks and stones enjoy only a narrow market.

(d) Grading and Sampling

Grading means dividing the goods based on quality. Sampling means a part representing the whole. Goods, which are amenable to grading and sampling generally, command an international market. Grading helps the purchasers to identify the quality of the product without the inspection.

(e) Adequate supply

To have wider market the commodities should have an adequate supply. However, rare pictures and paintings though they could not be supplied in plenty enjoy international markets because of their prestige value.

General Conditions Affecting the Demand for a Commodity

(a) Peace and Security

The existence of political stability, peace and security are of vital importance for smooth trade. If the law and order situation in a country deteriorates due to political unrest and the revolutionary attitudes of certain groups, markets will get hampered.

(b) Stable Currency and Efficient Financial Institutions

With the help of well-developed banks and other financial institutions, marketing can be profitably and easily carried on over wide and extensive areas. In the modern world, international trade occupies an important place. The extent of international trade depends upon the value of the home currency and the confidence it inspires among foreigners.

(c) Government Policy

The import and export policy of the government has also a considerable impact on the size of the market. If the government imposes many restrictions in the form of quotas and duties, trade will be affected. Likewise, restrictive policies of the importing country will also have an adverse effect on the exporting country.

(d) Transport and Communication

A properly developed transport system in the form of roads, railways, steamships and airplanes is highly useful for the widening of both internal and international trade. Likewise, efficient means of communications like posts and telegraphs, telephones etc., help the traders to keep in touch with their distant markets and send information regarding market trends.

(e) Degree of division of labor

According to Adam Smith, the division of labor depends upon the extent of the market. But in a sense, the extent of the market also depends upon division of labor. Division of labor by reducing the average cost of production increases the size of the market.

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      shikha 17 months ago

      It. Is very usefulll..to me..