Classification of Markets

Economists developed a classification of markets based on a market’s structure and the nature of competition within the market. The classification of a market is based on six different conditions: the existence of competition, the size or area of the market, the number and size of suppliers, the influence of suppliers over price, and the ease of entering the market.

Classification of Markets

The conditions present in any market are used to classify markets. There are several conditions that economists will look at whenever they’re classifying markets. These conditions include the existence of competition.

First of all, is there competition? If so, how many competitors? Once you get down to how many competitors, what are they competing with? Do they have the same products or a similar version of products, but none of them are actually the same? They also will look at the size or area of the market. Is this a local market, just in one specific area? Is it a national market throughout a whole country, or is it an international market, in which goods are traded between nations as well?

The number and size of suppliers is taken into consideration. How many people are producing or supplying these products? How big are the companies that are producing these products? Influence of suppliers over price. If there is only one supplier, that supplier will be able to control the price. If there are a couple of suppliers, then how one supplier changes their price is going to affect what the other supplier does.

If there are a lot of suppliers, they will still take into account what their competition is going to do regarding price. Variety of available products: Is everyone selling the exact same products or are they selling variations of a similar product? Ease of entering the market: If you want to become a seller in the market or a buyer in the market, how difficult is it to do that? Can you just jump right in and do it, or is it difficult to get into the market? Is it locked down to just one particular supplier or one particular buyer, or just two of them? Are there a lot of them?

If there are a lot of suppliers and a lot of buyers, then it will be easier to enter the market. Economists will classify a market based on its structure and the nature of competition within the market. When classifying markets, keep in mind that there are several different economic conditions that will be taken into account whenever the market is classified.



by Mometrix Test Preparation | This Page Last Updated: July 26, 2023