Broadly the term market refers to a structure in which buyers and sellers of the commodity interact with each other for making transactions. It is not essential that the buyers and sellers should assemble at one particular place for making transactions. The important thing is that they should be in contact with each other through any means of communication such as letters, telephones, telegrams, fax, internet etc. As a result of the contact/competition, there is tendency to one price of same good to prevail in the market.

Simply put, market is any area where buyers and sellers of a commodity interact with each other to affect purchase and sale of a commodity.

Thus, essential ingredients of a market are: (i) Commodity or service which is bought and sold, (ii) Buyers and sellers to affect transaction. (iii) Close contact among buyers and sellers. (iv) Area where there is communication or competition among buyers and sellers is spread over. Accordingly a commodity may have a local market, regional market, national market or an international market.

A market structure refers to number of firms operating in the industry, nature of competition between them and the nature of the product. These factors determine market structure.

Meaning. Perfect competition is a market situation in which there are a large number of buyers and sellers, firms sell a homogeneous product and there is free entry and exit. Product sells at a uniform price in the whole market (industry). No individual firm can influence the market price by its independent action because a firm is the only 'price-taker' and industry is the 'price-maker'. It implies no rivalry among firms. The firm, at this given price, can only decide how much quantity of the product to sell. As a result, demand (or AR) curve facing an individual firm is horizontal straight line parallel to X-axis as shown in Fig. 4.1. Perfect competitive market can be defined better in terms of its characteristics which are as under.

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