Economic concepts related to the Asia's biggest mirchi market

Today let’s see how we can observe economic concepts related to any product or service or organization or sector or body of associations. For example let’s take a agricultural market like Asia’s biggest chilli yard which is Guntur mirchi yard in to consideration.

For time being I will be a trader in that market doing business on buying and selling of chillies. Now the concepts flows as follows,

·       Perfect competitive market:

The market I am trading in is a perfect competitive market where the entry and exit of any trader is free, just have to get registered in the concerned associations. The traders and the farmers both are price takers as the quantity they influence is not so big when compared to the total market, same wise goes for the farmers also. If I demand high price form my customers who may be individual or a group of individuals they goes to a person who gives it to low price.

It also consists some of the characteristics of monopolistic competition as some may provide same chillies but with a little variation.

·         Price discrimination:

The market follows 3^rd degree of price discrimination where the goods are divided into different segments and sold to different types of consumers. For an example some of the buyers may be companies that produce chilli powder out of the product while some may buy here for cheaper rates and export them to other countries for higher prices. So the price varies from segment to segment. (if you want to know about price discrimination you can visit my previous blog on that).

·         Price mechanism:

If the price of the chillies decreases the buyers are going to buy more which stops the sellers from supplies as it does not give much income to them, so they put their goods in cold storage which results to scarcity of goods which create more demand that leads to increase of prices. Now the sellers sell their goods which are in cold storage at higher prices.

·         Economies of Agglomeration:

Cost reductions that firms obtain by locating in proximity to each other. As the traders and sellers who are farmers will be in one place which reduces their costs. There are many cold storages located nearby the yard to facilitate the farmers and traders to store their goods for some time up to the market reaches a reasonable price which they are willing to get. This also reduces the costs like travelling cost and all the traders will be in the same place which results in better doing of business.

·         Price determination:

In a perfect competitive market through interactions between demand and supply ie, demand and supply have an equally important role to play. It depends on the time period also if the price decreases the suppliers want to supply less so they put their goods in cold storage and when the demand for them rises they can only supply those goods that are with them but they cannot produce new goods as it takes time to grow, If the time period is long they will them produce those goods.