VALUE AND MARKETS

A market can be represented by supply and demand diagrams but it is really the "place" in which buyers and sellers interact. They may be in the same physical place, for example, at an auction or may be connected by a communication network for example, the stock exchange. Price is determined in the market and is dependent on the nature of the competition.

PURE COMPETITION

There are 4 conditions necessary for pure competition:

  1. HOMOGENEITY
    The units of the product must be identical or at least buyers and sellers think they are.
  2. BUYERS AND SELLERS ARE SMALL
    That is, too small to a have a measurable effect on the price. For example, individual house builders are not concerned that if they increase their own production of houses, it will affect the price of a house.
  3. ABSENCE OF ARTIFICIAL RESTRAINTS
    The market is free of price or output fixing by government, producer associations etc. Such actions are illegal under the Trade Practices Act.
  4. MOBILITY
    Goods and productive services must be free to move so as to receive the greatest return and buyers must be free to buy where the price is lowest. That is, there is not a "captive" market. The only service station in a remote country town can take advantage of its captive market and keep the price of petrol high.

See perfect market.

See price and value.