A market price may result from any one of four conditions: (1) One buyer and one seller, (2) one buyer and several sellers, (3) several buyers and one seller, and (4) several buyers and several sellers.

The first of these, one buyer and one seller, is now of no great importance, though it characterized trade at an earlier day, when men lived far apart and exchanged goods with little reference to community demands. Occasionally even now exchanges are made in which there are but one buyer and one seller: the owner of a family heirloom, a stranger let us say, offers to sell the heirloom to the only remaining member of the family. The determination of price in this case bears two characteristics not usually met. First, both the buyers' surplus and the sellers' surplus are likely to be exceptionally large. Second, the good exchanged is incapable of reproduction.

Almost as rare under free competition are the cases where there are one buyer and several sellers. Frequently, however, some buying monopolist controls the market. While, as we shall see presently, he is restrained from pretending to have a ridiculously low maximum price, he can, and often does, as in the case of crude oil, iron ore, and leaf tobacco, enjoy an excessive buyers' surplus. Fortunately for the sellers, law and popular feeling frown on buyers' monopolies.

Monopolistic also is the third condition, where there are several buyers and one seller, though usually, as under the second condition, the monopoly is not complete. Any one of the so-called trusts we may consider the single seller; the public, the several buyers. The Standard Oil Company, for example, while its monopoly is not complete, represents the single seller, while the users of gasoline, to name only one group of its customers, comprise the buyers.

The fourth, and by far the most important condition under which a market price is established, is when there are several buyers and several sellers. Here we find each buyer with his own notion of a maximum price, and each seller knowing rather definitely his minimum price, which, as we have seen, is determined by his expenses of production. Here too, we must assume competition to be free and active, and each buyer and seller to be desirous to drive the best bargain possible. With these assumptions in mind we can now turn our attention to the determination of market price under competitive conditions.