Question

Describe the conditions in which markets do not work in a fair manner.

Answer 1

Markets do not work in a fair manner under the following conditions:

1. When producers are few and powerful
2. When consumers purchase in small quantities
3. When consumers are scattered

If sellers are few and consumers are large in number and scattered, then the sellers have more bargaining power than the consumers. In other words, the producers determine the price, while the consumers take the given price. This leads to exploitation of the consumers, as the producers have the power to charge high prices for the commodity that has low production. Also, sometimes, the producers produce a lesser quantity of products than what is socially optimal; this, in turn, brings inefficiency in the market. The consumer surplus remains low, while the producer surplus remains high. Thus, the functioning in such markets is not fair.