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Definitions
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Dictionary > Definitions > Economy > Market
Market
Definition
In economics, a market is a social structure developed to facilitate the exchange of rights, services or product ownership. Markets enable peoples' services, firms and products to be evaluated and priced. There are two roles in markets, buyers and sellers
Description
Although many markets exist on the traditional sense--such as a flea
market--there are various other types of markets and various organizational
structures to assist their functions.
A market can be organized as an auction, as a private electronic market, as a
shopping center, as a complex institution such as a stock market, and as an
informal discussion between two individuals.
In economics, a market that runs under laissez-faire policies is a free market.
It is "free" in the sense that the government makes no attempt to intervene
through taxes, subsidies, minimum wages, price ceilings, etc. Market prices may
be distorted by a seller or sellers with monopoly power, or a buyer with
monopsony power. Such price distortions can have an adverse effect on market
participant's welfare and reduce the efficiency of market outcomes. Also, the
level of organization or negotiation power of buyers, markedly affects the
functioning of the market. Markets where price negotiations do not arrive at
efficient outcomes for both sides are said to experience market failure.
Most markets are regulated by state wide laws and regulations. While barter
markets exist, most markets use currency or some other form of money.
Markets of varying types can spontaneously arise whenever a party has interest
in a good or service that some other party can provide. Hence there can be a
market for cigarettes in correctional facilities, another for chewing gum in a
playground, and yet another for contracts for the future delivery of a
commodity. There can be black markets, where a good is exchanged illegally and
virtual markets, such as eBay, in which buyers and sellers do not physically
interact. There can also be markets for goods under a command economy despite
pressure to repress them.
The function of a market requires, at a minimum, that both parties expect to
become better off as a result of the transaction. Markets generally rely on
price adjustments to provide information to parties engaging in a transaction,
so that each may accurately gauge the subsequent change of their welfare. In
some markets, such as those involving barter, individual buyers and sellers must
engage in a more lengthy process of haggling in order to gain the same
information. Markets are efficient when the price of a good or service attracts
exactly as much demand as the market can currently supply. The chief function of
a market, then, is to adjust prices to accommodate fluctuations in supply and
demand in order to achieve allocative efficiency.
More complex economic systems in which goods and services are exchanged through
markets by larger groups of people, organizations, and businesses are called
market economies. The decision of exchange regarding the prices and the quantity
are decentralized; employees or independent agents (often called brokers) act as
buyers and sellers, involving themselves in the exchange. This tendency often
takes place in Financial markets, where the buyer may only have access to an
account and the seller may only issue a receipt or bill of sale during the
trade. In this case, neither the buyer or seller would actually see the products
or money they were trading with.
An alternative economic system in which non-participants to the exchange (often
government mandates) determine prices are called planned economies or command
economies. The attempt to combine socialist ideals with the incentive system of
a market is known as market socialism.
Author
Aziz
Author Email
azizjipsbd@yahoo.com
References
Definitions to be consulted