Q.State the main bases on which markets are classified in economics, and name the four market forms recognised when markets are classified by the degree of competition.

Economists classify markets along more than one dimension, but the classification this chapter is built around looks specifically at how competitive a market is.

Each of these four is distinguished by the number of sellers, the nature of the product, freedom of entry and exit, and the degree of control a seller has over price.

Because markets differ from one another in several independent ways, economists do not use a single classification scheme but several, each useful for a different purpose.

Classified by geographical area, a market may be local (a village's daily vegetable market, confined to a small area), national (the market for two-wheelers across India), or international (the global market for crude oil or gold), depending simply on how widely buyers and sellers are willing and able to reach in order to trade. Classified by time period, following the distinction Alfred Marshall introduced, a market may be a very short period market (where supply is completely fixed, such as the day's catch of fish that must be sold before it spoils, however much the price offered varies), a short period market (where firms can vary output using their existing plant and machinery, but cannot change the scale of the plant itself), or a long period market (where firms can even change the scale of their plant, and new firms can enter the industry or existing ones can leave it).

For this chapter, however, the classification that matters most is by degree of competition — how many sellers operate in the market, whether they sell an identical or a differentiated product, how freely new firms can enter or leave, and how much control an individual seller has over price. On this basis, economics recognises four broad market forms, arranged from the most competitive to the least: perfect competition (a very large number of sellers of a homogeneous product, no seller with any price control); monopoly (a single seller with no close substitute, blocked entry, full price control); monopolistic competition (a large number of sellers of differentiated, close-substitute products, free entry, limited price control); and oligopoly (a few large, interdependent sellers, difficult entry, price control constrained by rivals' likely reactions). Every remaining section of this chapter examines one of these four market forms in turn.

Students often confuse the time-period classification (short/long period, referring to how fixed supply is) with the degree-of-competition classification covered in the rest of this chapter — keep the two separate.