Economic Exchange System
An Economic Exchange System is a exchange system that facilitates economic market value exchanges between economic market agents through economic market mechanisms.
- AKA: Market (Economics), Economic Marketplace, Economic Market, Market.
- Context:
- It can typically coordinate Economic Market Resource Allocation through economic market price signals.
- It can typically enable Economic Market Value Discovery through economic market interactions.
- It can typically facilitate Economic Market Transactions between economic market buyers and economic market sellers.
- It can typically establish Economic Market Equilibrium Prices through economic market supply-demand mechanisms.
- It can typically distribute Economic Market Goods and economic market services via economic market exchange processes.
- It can typically solve Economic Market Coordination Problems through economic market decentralized decisions.
- It can typically transmit Economic Market Information through economic market price systems.
- It can typically balance Economic Market Quantity through economic market clearing mechanisms.
- It can typically create Economic Market Competition among economic market participants.
- It can typically generate Economic Market Innovation Incentives through economic market profit opportunities.
- It can typically match Economic Industry output with economic market consumer demand.
- It can typically provide Economic Market Liquidity for economic market asset conversion.
- It can typically enforce Economic Market Contracts through economic market institutions.
- It can typically reduce Economic Market Search Costs through economic market intermediarys.
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- It can often aggregate Economic Market Participant Knowledge from economic market actors.
- It can often generate Economic Market Price Signals for economic market decision-making.
- It can often create Economic Market Efficiency Incentives through economic market competitive pressures.
- It can often enable Economic Market Specialization through economic market division of labor.
- It can often reduce Economic Market Transaction Costs through economic market platforms.
- It can often reveal Economic Market Consumer Preferences through economic market revealed preferences.
- It can often enable Economic Market Risk Transfer through economic market financial instruments.
- It can often facilitate Economic Market Capital Formation through economic market investment mechanisms.
- It can often support Economic Market Price Discovery through economic market continuous trading.
- It can often enable Economic Market Liquidity Provision through economic market makers.
- It can often experience Economic Market Failure when economic market mechanisms break down.
- It can often develop Economic Market Network Effects through economic market participant growth.
- It can often implement Economic Market Standards through economic market self-regulation.
- It can often create Economic Market Arbitrage Opportunities through economic market price differentials.
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- It can range from being a Simple Economic Market to being a Complex Economic Market, depending on its economic market operational sophistication.
- It can range from being a Local Economic Market to being a Global Economic Market, depending on its economic market geographic scope.
- It can range from being a Competitive Economic Market to being a Monopolistic Economic Market, depending on its economic market structure.
- It can range from being a Physical Economic Market to being a Digital Economic Market, depending on its economic market infrastructure.
- It can range from being a Regulated Economic Market to being a Free Economic Market, depending on its economic market governance.
- It can range from being an Efficient Economic Market to being an Inefficient Economic Market, depending on its economic market information completeness.
- It can range from being a Liquid Economic Market to being an Illiquid Economic Market, depending on its economic market trading volume.
- It can range from being a Transparent Economic Market to being an Opaque Economic Market, depending on its economic market information visibility.
- It can range from being a Spot Economic Market to being a Futures Economic Market, depending on its economic market temporal settlement.
- It can range from being a Centralized Economic Market to being a Decentralized Economic Market, depending on its economic market organizational structure.
- It can range from being a Formal Economic Market to being an Informal Economic Market, depending on its economic market institutional framework.
- It can range from being a Primary Economic Market to being a Secondary Economic Market, depending on its economic market asset origination.
- It can range from being a Wholesale Economic Market to being a Retail Economic Market, depending on its economic market participant scale.
- It can range from being a Continuous Economic Market to being a Periodic Economic Market, depending on its economic market trading schedule.
- It can range from being a Homogeneous Economic Market to being a Differentiated Economic Market, depending on its economic market product variety.
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- It can operate within Economic Market System Frameworks for economic market coordination.
- It can utilize Economic Market Infrastructure for economic market transaction processing.
- It can employ Economic Market Mechanisms for economic market price determination.
- It can implement Economic Market Rules for economic market behavior governance.
- It can leverage Economic Market Institutions for economic market stability maintenance.
- It can incorporate Economic Market Technology for economic market efficiency enhancement.
- It can establish Economic Market Protocols for economic market information dissemination.
- It can measure Economic Market Performance through economic market metrics.
- It can evolve through Economic Market Innovation via economic market technological advancements.
- It can integrate Economic Industry production with economic market consumption.
- It can connect Economic Market Producers across economic market value chains.
- It can enable Economic Market Entry for economic market new participants.
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- Example(s):
- Financial Economic Markets demonstrating economic market value discovery and economic market capital formation, such as:
- Equity Economic Markets enabling economic market ownership transfer, such as:
- New York Stock Exchange Economic Market for economic market equity trading with high economic market liquidity.
- NASDAQ Economic Market for economic market technology stock trading with economic market electronic infrastructure.
- Shanghai Stock Exchange Economic Market for Chinese economic market equity trading with economic market regulatory control.
- London Stock Exchange Economic Market for British economic market equity trading with economic market international reach.
- Tokyo Stock Exchange Economic Market for Japanese economic market equity trading with economic market automated systems.
- Cryptocurrency Exchange Economic Markets for economic market digital asset trading with economic market 24/7 operation.
- Debt Economic Markets facilitating economic market capital lending, such as:
- U.S. Treasury Bond Economic Market for economic market government debt trading with economic market benchmark pricing.
- Corporate Bond Economic Market for economic market corporate debt trading with economic market credit risk pricing.
- Municipal Bond Economic Market for economic market local government debt trading with economic market tax advantages.
- Eurobond Economic Market for economic market international bond trading with economic market currency diversification.
- Peer-to-Peer Lending Economic Market for economic market direct lending with economic market platform intermediation.
- Currency Economic Markets enabling economic market exchange rate determination, such as:
- Foreign Exchange Economic Market (Forex) for economic market currency pair trading with 24/7 economic market operation.
- Cryptocurrency Economic Market for economic market digital currency trading with economic market decentralized structure.
- Digital Central Bank Currency Economic Market for economic market CBDC trading with economic market government backing.
- Derivatives Economic Markets providing economic market risk management, such as:
- Futures Economic Market for economic market futures contract trading with economic market standardized contracts.
- Options Economic Market for economic market options contract trading with economic market asymmetric payoffs.
- Swaps Economic Market for economic market swap agreement trading with economic market customized terms.
- Credit Default Swap Economic Market for economic market credit risk trading with economic market insurance function.
- Equity Economic Markets enabling economic market ownership transfer, such as:
- Commodity Economic Markets demonstrating economic market price discovery and economic market physical delivery, such as:
- Energy Economic Markets coordinating economic market energy allocation, such as:
- Oil Economic Market for economic market petroleum trading with economic market global pricing.
- Natural Gas Economic Market for economic market gas commodity trading with economic market seasonal patterns.
- Electricity Economic Market for economic market power trading with economic market real-time balancing.
- Coal Economic Market for economic market coal trading with economic market declining volumes.
- Renewable Energy Certificate Economic Market for economic market green energy trading with economic market environmental incentives.
- Carbon Credit Economic Market for economic market emission trading with economic market cap-and-trade mechanisms.
- Agricultural Economic Markets distributing economic market food resources, such as:
- Grain Economic Market for economic market grain commodity trading with economic market harvest cycles.
- Livestock Economic Market for economic market animal commodity trading with economic market quality grading.
- Coffee Economic Market for economic market coffee bean trading with economic market origin premiums.
- Sugar Economic Market for economic market sugar commodity trading with economic market processing stages.
- Local Farmers' Economic Market for economic market local produce trading with economic market direct distribution.
- Organic Food Economic Market for economic market certified organic trading with economic market premium pricing.
- Metals Economic Markets allocating economic market mineral resources, such as:
- Gold Economic Market for economic market precious metal trading with economic market safe haven demand.
- Silver Economic Market for economic market silver trading with economic market industrial applications.
- Industrial Metals Economic Market for economic market base metal trading with economic market economic indicators.
- Rare Earth Elements Economic Market for economic market rare metal trading with economic market supply concentration.
- Lithium Economic Market for economic market battery metal trading with economic market electric vehicle demand.
- Energy Economic Markets coordinating economic market energy allocation, such as:
- Labor Economic Markets demonstrating economic market human capital allocation, such as:
- Professional Labor Economic Markets matching economic market skilled workers, such as:
- Technology Labor Economic Market for economic market tech talent exchange with economic market skill premiums.
- Healthcare Labor Economic Market for economic market medical professional exchange with economic market credential requirements.
- Finance Labor Economic Market for economic market financial professional exchange with economic market bonus structures.
- Education Labor Economic Market for economic market teaching professional exchange with economic market tenure systems.
- Legal Labor Economic Market for economic market legal professional exchange with economic market partnership tracks.
- Skilled Trade Labor Economic Markets for economic market craft worker exchange with economic market apprenticeship paths.
- Gig Economy Labor Market for economic market freelance service exchange with economic market platform intermediation.
- Remote Work Labor Economic Market for economic market distributed workforce exchange with economic market location arbitrage.
- Seasonal Labor Economic Market for economic market temporary worker exchange with economic market cyclical demand.
- Professional Labor Economic Markets matching economic market skilled workers, such as:
- Real Estate Economic Markets demonstrating economic market spatial resource allocation, such as:
- Residential Real Estate Economic Market for economic market home trading with economic market mortgage financing.
- Commercial Real Estate Economic Market for economic market business property trading with economic market lease structures.
- Industrial Real Estate Economic Market for economic market warehouse facility trading with economic market logistics value.
- Agricultural Real Estate Economic Market for economic market farmland trading with economic market productivity measures.
- Real Estate Investment Trust Economic Market for economic market REIT trading with economic market dividend yields.
- Vacation Rental Economic Market for economic market short-term property rental with economic market seasonal pricing.
- Service Economic Markets demonstrating economic market intangible value exchange, such as:
- Digital Service Economic Markets enabling economic market virtual service delivery, such as:
- Cloud Computing Economic Market for economic market computing resource trading with economic market scalable pricing.
- Software-as-a-Service Economic Market for economic market software subscription trading with economic market recurring revenue.
- Platform-as-a-Service Economic Market for economic market platform service trading with economic market developer ecosystems.
- Data-as-a-Service Economic Market for economic market data service trading with economic market API access.
- Streaming Service Economic Market for economic market content subscription trading with economic market tiered pricing.
- Professional Service Economic Markets facilitating economic market expertise exchange, such as:
- Consulting Service Economic Market for economic market expertise trading with economic market hourly billing.
- Legal Service Economic Market for economic market legal service trading with economic market retainer models.
- Accounting Service Economic Market for economic market financial service trading with economic market audit standards.
- Marketing Service Economic Market for economic market promotional service trading with economic market performance metrics.
- Design Service Economic Market for economic market creative service trading with economic market project-based pricing.
- Consumer Service Economic Markets providing economic market personal services, such as:
- Entertainment Economic Market for economic market entertainment content trading with economic market subscription models.
- Insurance Economic Market for economic market risk transfer trading with economic market actuarial pricing.
- Travel Service Economic Market for economic market tourism service trading with economic market seasonal pricing.
- Healthcare Service Economic Market for economic market medical service trading with economic market insurance coverage.
- Personal Care Service Economic Market for economic market beauty service trading with economic market appointment booking.
- Digital Service Economic Markets enabling economic market virtual service delivery, such as:
- Specialized Economic Markets demonstrating unique economic market mechanisms, such as:
- Auction Economic Markets using economic market bidding mechanisms for economic market price discovery.
- Prediction Economic Markets aggregating economic market information for economic market forecast trading.
- Water Rights Economic Market allocating economic market scarce resources through economic market tradeable permits.
- Spectrum Auction Economic Market distributing economic market frequency rights via economic market competitive bidding.
- Art Economic Market trading economic market unique assets with economic market subjective valuation.
- Sports Memorabilia Economic Market exchanging economic market collectibles with economic market nostalgia premiums.
- Intellectual Property Economic Market transferring economic market IP rights with economic market royalty structures.
- Data Economic Market trading economic market information assets with economic market privacy considerations.
- Organ Donation Economic Market allocating economic market scarce medical resources under economic market regulatory frameworks.
- Emissions Trading Economic Market for economic market pollution permit trading with economic market environmental goals.
- Industry-Specific Economic Markets connecting Economic Industry output with consumption, such as:
- Technology Industry Economic Markets for economic market technology product trading.
- Healthcare Industry Economic Markets for economic market medical product distribution.
- Manufacturing Industry Economic Markets for economic market manufactured goods exchange.
- Agricultural Industry Economic Markets for economic market farm product trading.
- Entertainment Industry Economic Markets for economic market creative content distribution.
- Historical Economic Market Evolutions demonstrating economic market institutional development, such as:
- Medieval Economic Market (500-1500), characterized by economic market guild control and economic market local exchange.
- Mercantile Economic Market (1500-1800), featuring economic market colonial trade and economic market merchant capitalism.
- Industrial Economic Market (1800-1950), enabling economic market mass production and economic market labor specialization.
- Post-War Economic Market (1950-1990), establishing economic market global institutions and economic market regulatory frameworks.
- Digital Economic Market (1990-present), creating economic market electronic platforms and economic market algorithmic trading.
- Blockchain Economic Market (2010-present), introducing economic market decentralized ledgers and economic market smart contracts.
- AI-Driven Economic Market (2020-present), implementing economic market artificial intelligence for economic market automated decision-making.
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- Financial Economic Markets demonstrating economic market value discovery and economic market capital formation, such as:
- Counter-Example(s):
- Gift Economy, which exchanges gift items without economic market pricing mechanisms.
- Planned Economy, which allocates economic resources without economic market supply-demand signals.
- Subsistence Economy, which produces for personal consumption without economic market exchange mechanisms.
- Barter System, which trades goods directly without economic market monetary mediums.
- Sharing Economy Platforms like Freecycle, which distribute without economic market price transactions.
- Natural Monopoly situations, where economic market competition mechanisms cannot function effectively.
- Public Good scenarios, where economic market exclusion mechanisms fail to provide optimal allocation.
- Command Economy, which uses central planning directives instead of economic market price signals.
- Traditional Economy, which relies on cultural customs rather than economic market mechanisms.
- Commons-Based Peer Production, which creates economic value without economic market exchanges.
- Economic Industry, which produces economic goods and economic services rather than facilitating their exchange.
- See: Economic System, Market Mechanism, Price Discovery, Supply and Demand, Market Structure, Market Failure, Market Efficiency, Economic Agent, Economic Transaction, Economic Exchange, Market Equilibrium, Invisible Hand, Economic Coordination, Market Institution, Market Regulation, Market Evolution, Economic Industry, Economic Production, Economic Distribution, Economic Competition.
References
2025-01-11
- Deep Research https://chatgpt.com/s/dr_68721aceef4481918caa4763692d7122
- Question: What is an Economic Market and how does it function as a decisioning system that facilitates exchanges of value between economic agents?
- Answer: An Economic Market is essentially a system or arrangement that facilitates exchanges of value between economic agents (buyers and sellers). It functions as a decisioning system that enables the exchange of economically valuable items between parties via transactions, where prices are determined by the forces of supply and demand.
- Definition and Overview:
- An Economic Market – also called a market in economics or an economic marketplace – is essentially a system or arrangement that facilitates exchanges of value between economic agents (buyers and sellers). In other words, it is a "decisioning system" that enables the exchange of economically valuable items between parties via transactions. In economics, a market can be broadly defined as any structure or mechanism that allows buyers and sellers to engage in exchange of goods, services, or assets. It is "the process by which the value (price) of goods and services are established" through interactions of supply and demand. Markets can be physical (like a marketplace or store) or virtual (like an online platform), but in all cases they provide a venue for voluntary transactions where sellers offer their goods or services and buyers purchase them, usually in exchange for money. By enabling such exchanges, markets play a central role in allocating resources and coordinating economic activity in society.
- Key characteristics: Every market has some common elements. There must be at least one buyer and one seller (and usually many of each in well-developed markets). A market need not be a physical place – it can refer to an industry or an abstract platform where trade occurs. What defines it is the presence of buyers, sellers, and something of economic value to trade (a good, service, or asset). Prices in a market are generally determined by the forces of supply and demand, which interact to set what is known as the market price for each item. In fact, it can be said that a market is the process by which prices are determined and value is discovered through these exchanges. Markets typically arise spontaneously (from individuals' willingness to trade) or are deliberately created, and they operate within the rules or institutions of a society (laws, property rights, etc.) that support the trading process.
- Core Functions of Economic Markets:
- Resource Allocation via Price Signals: Markets coordinate the allocation of scarce resources by using prices as signals. When demand for a resource rises or supply falls, its price increases; this higher price signals scarcity and incentivizes producers and consumers to respond appropriately. As economist F. A. Hayek observed, the price mechanism in markets effectively conveys information – a market is a "coordinating mechanism that uses prices to convey information" to guide production and distribution decisions. In a well-functioning market, scarce resources tend to flow toward their most valued uses because price changes guide firms and individuals on what to produce more of or consume less of. For example, if oil becomes more scarce, oil prices rise, signaling consumers to conserve or seek alternatives and prompting producers to invest in more supply or substitutes. In this way, markets solve the allocation problem by ensuring that what is produced (and in what quantity) aligns with what people collectively want and are willing to pay, all through decentralized decisions driven by price signals.
- Price Discovery and Value Determination: Economic markets enable price discovery – the process by which buyers and sellers jointly determine the market price of a good or asset through their interactions. Every transaction in a market contributes to discovering the "fair" value based on current supply and demand conditions. For instance, in financial markets, continuous trading by many participants results in up-to-the-minute prices for stocks or commodities; these prices reflect the collective information and preferences of market participants. In commodity auctions or real estate sales, bids and offers reveal how much buyers are willing to pay and sellers are willing to accept, thus discovering the market value. Price discovery is crucial because it provides transparent valuation of goods and resources, helping participants make informed decisions. Through this discovery mechanism, markets also help reveal information about quality, scarcity, and future expectations of goods and services.
- Facilitating Transactions and Exchanges: A primary purpose of any market is to facilitate transactions between buyers and sellers. Markets provide the rules, institutions, or platforms that make trading easier – whether it's a local shop enabling a simple purchase, a farmers' market hosting many sellers and buyers on given days, or an online marketplace matching buyers and product listings. By bringing together interested parties, a market dramatically reduces the transaction costs of exchange (compared to finding trading partners randomly). In a market, buyers know where to find sellers and vice versa, and often there are established norms or intermediaries (like brokers or payment systems) that help the trade go smoothly. This function of facilitation is evident in all kinds of markets: for example, stock markets match investors wishing to sell shares with those wishing to buy, executing millions of trades efficiently each day. In sum, markets "are any setting where buyers and sellers can gather and interact", even if not in person. By enabling these interactions, markets expand the scope of trade beyond local or individual barter, allowing even strangers to trade goods and services with confidence in a structured environment.
- Establishing Market Prices (Supply–Demand Mechanism): Markets establish market prices for goods and services through the interplay of supply and demand. In a free exchange, sellers try to get the highest price they can, while buyers try to pay the lowest price; the market price emerges at a level where quantity supplied roughly equals quantity demanded. This price-setting mechanism is one of the most fundamental roles of markets. It was famously described by Adam Smith's metaphor of the "invisible hand", whereby individuals pursuing their own gain in markets inadvertently set prices that guide resources to their best use. Practically speaking, when demand exceeds supply, prices tend to rise; when supply exceeds demand, prices tend to fall, until an equilibrium is reached. Thus, markets are the processes through which prices are continually adjusted and discovered. "It can be said that a market is the process by which the prices of goods and services are established", as one source summarizes. These prices in turn signal producers to produce more or less and signal consumers to adjust their consumption, keeping the system in balance. The supply–demand price mechanism also transmits information: a high price indicates strong demand or tight supply, whereas a low price indicates weak demand or abundant supply.
- Distribution of Goods and Services: Markets enable the distribution of output throughout society by connecting those who have goods or services (producers or sellers) with those who need or want them (consumers or buyers). In a market economy, goods and services flow to those who value them most highly (as indicated by willingness to pay). Markets thus serve as the primary means of distributing products from producers to end-users. For example, food produced on farms is distributed to consumers via agricultural markets, wholesalers, and retailers; automobiles manufactured in factories reach buyers through dealerships and international markets. Because markets are driven by voluntary exchange, they tend to allocate products to those who are both willing and able to pay the market price, which in theory maximizes overall satisfaction given available resources. This process is closely tied to resource allocation – as markets distribute goods, they also allocate the resources used to produce them. Through trade, markets allow specialization (producers focusing on what they do best) and then ensure people can obtain a wide variety of goods/services by exchanging in the market. In summary, markets facilitate trade and enable the distribution and allocation of resources in society, functioning as the channels through which the economy's output is disseminated to consumers.
- Aggregation of Information and Signals: Markets act as powerful information-aggregation systems. Each buyer or seller in a market has their own knowledge (about their needs, costs, etc.), and when they transact, that private knowledge gets reflected in the price. In this way, market prices aggregate the information held by all participants about a good's value, scarcity, and potential uses. F. A. Hayek famously noted that the "marvel" of a market is that individuals can coordinate their plans by responding to price changes without needing to know all the underlying details – the price system communicates what is needed. For example, if a sudden shortage of copper occurs, copper prices will rise; manufacturers seeing higher prices might not know the cause (say, a strike at a major mine) but understand the signal to conserve copper or seek substitutes. Thus, markets aggregate dispersed information into one metric (price) that all can see and respond to. A transparent market, where price and availability information is widely known, allows participants to make well-informed decisions. In contrast, if information is hidden, markets function less efficiently. In essence, markets turn the collective actions and knowledge of millions into meaningful signals (prices, trends) that guide economic decision-making for others.
- Creation of Incentives: Markets create incentives for economic actors through the rewards and penalties conveyed by prices and competition. Price changes are not only signals; they are also incentives – "a price is a signal wrapped up in an incentive," as economists often say. For producers, the potential to earn profits in a market provides a strong incentive to innovate, increase efficiency, and offer products that consumers want. If a product becomes very profitable (high price relative to cost), new firms have an incentive to enter the market or existing firms to expand supply. Conversely, losses or declining prices push firms to either improve or exit the market. Consumers, too, face incentives: higher prices may incentivize them to conserve a good or seek cheaper alternatives, while lower prices encourage consumption. Competition among sellers incentivizes them to lower costs and improve quality to attract buyers, whereas competition among buyers (for scarce goods) can incentivize them to pay more or use the goods more efficiently. In sum, the market's price mechanism has an incentive function that motivates behavior – "higher prices provide an incentive to producers to supply more... the possibility of more revenue and profit", while for consumers, higher prices encourage saving or substitution, and lower prices encourage buying. These incentives tend to align individual self-interest with the overall allocation of resources (as efficient producers are rewarded and inefficient ones are driven out, for example).
- Enabling Competition and Innovation: Markets inherently foster competition among participants, which can drive efficiency and innovation. In most markets, sellers compete with one another for the business of buyers, and this competition can lead to lower prices, better quality products, and new solutions as firms strive to differentiate themselves. A healthy, competitive market (many buyers and sellers, none of whom can dictate the price) is often associated with efficient outcomes – resources are produced at the lowest cost and allocated to those who value them most, with minimal waste. Competitive pressures force producers to continually seek cost reductions or product improvements to maintain or grow their market share. For example, in the smartphone market with many rival brands, companies are driven to innovate new features and improve technology to attract consumers, resulting in rapid tech advancement. Markets also offer entrepreneurs the opportunity to enter with a new product or business model, challenging incumbents. On the buyer side, competition means consumers have choices and can shop for the best value, which rewards businesses that best satisfy consumer preferences. However, if a market lacks competition (e.g. a monopoly situation), these benefits diminish – a monopolist with no rivals may have less incentive to be efficient or innovative, leading to poorer outcomes for consumers (higher prices or stagnant products). Thus, one typical goal of market systems is to promote competition (antitrust laws, etc.), because competition harnesses self-interest for the broader benefit of innovation and consumer welfare. In summary, markets "enable economic competition among actors", and this competition can spur productivity growth and innovation, while also disciplining inefficient behavior through the threat of losing business.
- Types and Classifications of Economic Markets:
- Simple vs. Complex Markets:
- Simple markets typically involve a small number of participants and straightforward transactions, often trading a single type of good or service. For instance, a local farmers' market is a simple market: local farmers (sellers) and residents (buyers) meet in a town square to exchange fruits, vegetables, and similar goods. The rules are basic, prices are often set by simple bargaining or posted tags, and the products are fairly homogeneous (e.g. produce) – making it easy for buyers to compare and make decisions. In such a simple market, each transaction is relatively independent, and there are few complex financial instruments or intermediaries involved.
- Complex markets involve many participants, possibly trading multiple layers of goods and derivatives, often across vast networks. The global financial markets are a prime example of complex markets. Take the foreign exchange market or the stock market – these involve millions of participants around the world, operating 24/7 with electronic trading systems, multiple financial instruments (from basic stocks to complex derivatives), and sophisticated institutions like exchanges, clearinghouses, and regulatory bodies. Price determination in complex markets can involve advanced algorithms and rapid information flows. Another example is the global supply chain market for a product like automobiles: numerous suppliers, manufacturers, and dealers interact in a web of contracts and sub-markets (parts, labor, commodities, etc.), which makes the overall "automobile market" highly complex. Generally, simple markets have few actors and clear, direct exchanges, whereas complex markets have numerous actors and often require complex mechanisms to function. Complex markets can achieve massive scale and efficiency, but they may also be more prone to information asymmetries and require more oversight to ensure fairness and stability.
- Local vs. Global Markets:
- Local markets are confined to a limited area or community – for example, a city's housing market (like "the Brooklyn housing market" in New York) consists of buyers and sellers of homes within that city. Local markets often cater to local tastes, incomes, and regulations. They might be somewhat insulated from global trends (though not completely). Other examples include a regional labor market (jobs available in a town), a local farmers' market (produce sold within the community), or a neighborhood service market (like local hairdressers serving nearby customers).
- Global markets involve trade and competition across international boundaries. A classic example is the global oil market – oil is produced in certain countries but bought and used worldwide, and its price is largely set by global supply-demand dynamics. Similarly, the global diamond market or gold market involves buyers and sellers from all over the world converging on a single price (often quoted in common currency). In a global market, events in one part of the world (say, a drought affecting coffee crops in one country) can influence prices and availability everywhere. Global financial markets (currencies, stocks, bonds) link capital from one country to investment opportunities in another. With advances in technology and trade liberalization, many markets have become increasingly global. Even small businesses can reach international customers via digital platforms, effectively participating in global marketplaces.
- It's worth noting that the distinction between local and global is a continuum – there are also national markets (spanning a single country) and regional markets (like within a trade bloc or continent). The key difference is scale and reach: local markets are geographically limited and often influenced by local conditions, whereas global markets operate worldwide, integrating information and trade across distant regions. Global markets tend to have larger volumes and can achieve greater efficiency and competition, but they also expose participants to international competition and global economic forces.
- Competitive vs. Monopolistic Markets:
- A competitive market generally means there are many sellers and many buyers, such that no single actor can easily dictate the price. In the idealized form of perfect competition, there are a large number of small firms selling identical products, and all buyers and sellers are price-takers (meaning the market price is determined by overall supply and demand, not by any one participant). In such markets, consumers have abundant choice and firms must accept the prevailing market price. Real-world examples that approximate high competition include agricultural markets (e.g. wheat or corn farmers: each is small relative to the whole market and sells a largely uniform product, so they must take the price the market sets) and many retail or commodity markets where numerous providers offer similar goods. In competitive markets, prices tend to be lower and output higher compared to less competitive ones, benefiting consumers; however, profit margins for producers are usually thinner, which encourages efficiency.
- A monopolistic market, by contrast, is one in which one seller (or a single company/group) dominates the market and can strongly influence or set the price. A pure monopoly is an extreme case where only one seller exists for a product with no close substitutes. This seller effectively can set prices at will (though constrained by consumer demand – too high a price will still reduce quantity sold). Monopolies can arise from exclusive control of a resource, government licensing, patents, or natural market advantages. Examples include a local utility company for electricity or water in many regions (often a government-regulated monopoly), or a company with a patented drug that no one else can produce. Because a monopolist has no direct competitors, consumers have no alternatives and often face higher prices and less choice; monopolistic markets can also become inefficient (producing less than the socially optimal output).
- Between these extremes, there are oligopolies (a few large firms dominate the market) and monopolistic competition (many sellers but each offering a slightly differentiated product). For instance, the commercial aircraft market is an oligopoly with just a couple of major global manufacturers; the fast-food restaurant market is monopolistic competition – many sellers, but each brand differentiates itself (McDonald's vs. others) and has some degree of pricing power. Oligopoly firms recognize their interdependence – the market has "a small number of large companies," so each company's pricing or output decisions can influence the others. Monopolistic competition describes markets like clothing or restaurants, where numerous producers exist but each has a niche due to brand or quality differences.
- In summary, a market with a large number of competitors (no one dominant) is considered competitive, whereas a market dominated by one or a few entities is monopolistic or oligopolistic. Competitive markets tend to favor consumers and efficiency, while monopolistic markets can lead to higher prices and the need for regulation. In economic theory, maintaining competition (through antitrust laws, etc.) is important because if a single seller or buyer dominates (monopoly or monopsony), it leads to imperfect competition and potential market failure.
- Physical vs. Digital Markets:
- In a physical market, transactions occur at a tangible location. Examples include shopping at a retail store, trading vegetables at a farmers' market, or bidding in person at an auction house. Historically, physical marketplaces like bazaars, town markets, or trading floors (such as the floor of the New York Stock Exchange in its earlier decades) were the primary mode of commerce. Even today, physical markets are crucial for goods that people prefer to inspect or receive immediately (e.g. fresh produce, real estate open houses, local services). Physical markets often have a social and experiential component (browsing in a mall, interacting with vendors). However, they are limited by location and hours of operation.
- Digital markets overcome many of these limitations by leveraging technology. In a digital market, buyers and sellers transact through e-commerce websites, apps, or electronic exchanges. For instance, online marketplaces like Amazon, eBay, or Alibaba allow sellers from anywhere to list products and buyers from anywhere to purchase them, with the platform coordinating payment and sometimes delivery. Stock trading has largely moved to digital electronic exchanges where buy and sell orders are matched by computers in milliseconds. Digital markets can be extremely efficient and global in reach – a seller in one country can connect with a buyer in another seamlessly. They operate 24/7 in some cases, and reduce transaction costs (think of how easy it is to compare prices online or execute a trade via a broker's app). Digital markets also enable new forms of services – for example, the "gig economy" labor market is largely digital, with platforms like Upwork or Uber matching service providers to customers.
- That said, digital markets require certain infrastructure (internet access, digital payment systems) and trust mechanisms (reviews, escrow services) to function well. They also raise new issues like digital fraud or the need for cybersecurity. Many markets today are actually hybrid: physical and digital components co-exist. For example, one might physically go to a store (physical market) but also compare prices on a smartphone (digital information) or order online for in-store pickup. The key distinction is that physical markets require co-location of buyers and sellers at the time of exchange, whereas digital markets allow remote and often automated interactions. The trend has been toward increasing digitization of markets because of the efficiency and scale advantages, but physical markets remain important for certain kinds of transactions and community interactions.
- Regulated vs. Free Markets:
- A free market is characterized by voluntary exchanges and prices set purely by supply and demand, without government price controls, quotas, or excessive oversight. In an ideal free market, any buyer and seller can enter or exit the market at will, and competition is completely unfettered. "A free market is one where the laws of supply and demand provide the sole basis for the economic system, without government intervention". The role of the government is minimal – primarily to enforce property rights and contracts – but it does not dictate production decisions or prices. Pure free markets are more of a theoretical benchmark; in reality, almost all markets have some regulations or rules. However, some economies or sectors are more free-market-oriented (with light regulation and low barriers to entry) – for example, farmers selling produce at a roadside stand or the trade of digital gadgets in a competitive retail sector. Free markets are associated with the ideals of laissez-faire capitalism, where competition and private decision-making drive innovation and efficiency. It's also noted that completely free markets in the absolute sense don't exist; all real markets have "in some ways constraints", but those that approach the free-market ideal tend to correlate with high economic freedom and growth.
- A regulated market, by contrast, is one in which the government (or sometimes a self-regulatory industry body) intervenes with rules and oversight to influence the market outcomes. In a regulated market, authorities may control who can participate, set price floors or ceilings, impose quality standards, or enforce other requirements. For example, the electricity market in many countries is heavily regulated – government agencies might approve the rates utilities charge and mandate service standards. The financial markets are also regulated to ensure transparency and prevent fraud (e.g., the Securities and Exchange Commission in the U.S. regulates stock exchanges). A concise definition states: "A regulated market is overseen and controlled by government bodies or industry groups, which set rules regarding market entry, pricing, and consumer rights to ensure fair practices and safety standards.". Regulations can include licensing requirements (only certified individuals can offer medical services), safety mandates (e.g. pharmaceuticals must be approved before sale), environmental regulations (limiting pollution despite free market incentives), and so on. The goal of regulation is often to correct market failures, protect consumers, or achieve social outcomes that pure market forces might ignore.
- For instance, labor markets are regulated with minimum wage laws – a purely free labor market might see very low wages for some jobs, but a regulation sets a wage floor to protect workers. Similarly, building codes and health regulations constrain the free market in construction and food services to ensure safety. Pros and cons: Regulated markets can prevent abuses, ensure quality, and reduce externalities (like pollution), but excessive or poorly designed regulation can also stifle competition and efficiency. There is always a balance – "no modern country operates with completely uninhibited free markets", and the degree of regulation is a continuum. Some markets are more free (e.g. flea markets or farmer's markets have few regulations aside from basic laws) whereas others are highly regulated (e.g. nuclear energy markets or public utilities). In summary, free markets rely on decentralized decisions with minimal rules, while regulated markets incorporate government-imposed rules to guide or correct the outcomes.
- Efficient vs. Inefficient Markets:
- In financial economics, the concept of informational efficiency is captured by the Efficient Market Hypothesis (EMH). It posits that if a market is truly efficient, asset prices at any moment incorporate all known information about the asset. In a strong form of efficiency, even insider or hidden information would be reflected. In such an efficient market, it's impossible for investors to consistently achieve returns above the market average, since any new information is instantly priced in. For example, major stock markets are often considered semi-strong efficient – they rapidly reflect all publicly available information in stock prices. Under this view, current prices are the best unbiased estimate of value. Inefficient markets deviate from this ideal. "An inefficient market is one where asset prices don't reflect their true value due to factors like information asymmetry and transaction costs, creating potential for excess profits or losses.". In inefficient markets, some participants may have better information than others or might exploit slow adjustments in prices. This means savvy traders could buy undervalued assets or sell overvalued ones for profit, and resources might not flow to their best uses because price signals are noisy or delayed.
- Outside of finance, market inefficiency can also refer to situations where markets fail to allocate resources optimally from a societal perspective (for example, if there are externalities or monopolies, the market outcome might not be efficient). In such cases, economists say there is a market failure – resources may be overused or underused relative to what is best for overall welfare. A perfectly efficient market outcome is one where no one can be made better off without making someone else worse off (Pareto efficiency), and the goods produced are those most desired, at the lowest cost. Real markets often fall short due to practical frictions (e.g., costs to find information or barriers to entry). For instance, the real estate market can be quite inefficient – information on property values is imperfect and slow to aggregate, transactions are infrequent and have high costs, so prices might not always reflect true value and can lag behind changes in supply/demand. In contrast, the foreign currency market is very efficient in information terms: prices adjust within seconds to news events, and it's hard for any trader to consistently outguess the market.
- In summary, an "efficient market" quickly and accurately prices items using all available information (promoting optimal allocation), whereas an "inefficient market" has mispricings and information lags, which can lead to resources not being used in the best possible way. Many factors cause inefficiency: information asymmetry (one party knows more than another), high transaction costs, irrational behavior, or structural barriers. Identifying inefficiencies is important for policy and for investors seeking opportunities – for example, if stock prices don't reflect all info, skilled analysts might profit, and regulators might look at improving transparency to increase efficiency.
- Liquid vs. Illiquid Markets:
- In a liquid market, transactions are smooth: "it is easy to execute a trade quickly and at a desirable price because there are numerous buyers and sellers" available. High liquidity usually means tight bid-ask spreads (the difference between what buyers bid and sellers ask is small) because competition keeps prices converged, and large orders can be filled without much delay. Classic examples of very liquid markets include major foreign exchange markets (e.g., the market for U.S. dollars vs. euros is huge and highly liquid) and large stock markets like the New York Stock Exchange for blue-chip stocks – one can sell millions of dollars of Apple or Microsoft shares almost instantaneously at the current price, because there's always a counterparty. Commodity markets for things like gold or oil are also quite liquid during trading hours, as is the U.S. Treasury bond market. Liquidity provides flexibility to investors and producers; it allows assets to be converted to cash quickly, which is crucial for financial stability and pricing accuracy.
- In an illiquid market, the story is different: there are fewer participants or less frequent trading, so finding a buyer or seller can be difficult. The result is often wider spreads and more volatile or stale prices. As one source explains, the opposite of a liquid market, a thin or illiquid market, may have "considerably large spreads between the highest available buyer and the lowest available seller". If you try to sell a large amount in such a market, you might not find a buyer at the current quoted price – you'd have to drop the price substantially to attract interest, thus the price can swing. Examples of illiquid markets include things like real estate in a small town (a house might take months to sell and you may have to cut the price significantly to find a buyer quickly) or collectibles (say, rare art or vintage cars – finding the right buyer willing to pay full value can take time). Some stocks are also illiquid, especially those of small companies (low trading volume means an investor might struggle to unload shares without driving the price down). In the realm of currencies, some exotic or emerging-market currencies are thinly traded compared to major ones. Implications: In a liquid market, an investor has confidence they can enter or exit positions readily, and prices are continuously updated with new information. In an illiquid market, participants must be cautious, often demanding a premium (or discount) for the risk of not being able to trade quickly – this is known as a liquidity premium. Illiquid markets can be prone to larger price swings and sometimes can "freeze" under stress (no one is willing to trade, as seen in certain markets during financial crises). Thus, "liquid markets" provide ease of trade and stable pricing, while "illiquid markets" are characterized by difficulty in trading and potential price distortions due to low volume.
- Transparent vs. Opaque Markets:
- In economics, "a market is transparent if much is known by many about what products, services, or assets are available, what the prices are, and where trades are occurring". Transparency is generally desirable because it levels the playing field and tends to make markets more efficient. For example, stock exchanges are relatively transparent markets: anyone can see the current bid and ask prices for a stock, recent transaction prices, and the total volume traded. This information allows investors large and small to make decisions with the same market data, and it tends to ensure the price reflects the consensus view of value. Another example is an open commodities exchange – prices of oil, gold, etc., are published and updated continuously, so producers and consumers worldwide know the going rate. Market transparency also refers to knowing the depth of the market (how much quantity is available at various prices) and any other relevant information (like quality of products). A transparent market should ideally provide all necessary information to facilitate informed decision-making.
- An opaque market, conversely, is one where trades are not easily observable. Prices might be negotiated privately and not reported publicly, and the availability of goods or assets might not be widely known. Over-the-counter (OTC) markets are often less transparent than exchange-traded markets. For instance, certain bond markets or derivatives markets are OTC – trades are bilateral between institutions, and while big players know the prices they are trading at, there may not be a centralized ticker for all to see. This can lead to information asymmetry: some participants (insiders or large firms) might have better knowledge of recent transaction prices than others. The foreign exchange market has both transparent parts (electronic platforms where many trades flow) and opaque parts (direct interbank trades). The art market is famously opaque – when a painting sells privately, the price might not be disclosed, making it hard to know the "market price" for a given artist's works. Consequences: Opaque markets can sometimes facilitate price discrimination (charging different prices to different buyers) or collusion, because lack of transparency can prevent outsiders from detecting unfair pricing. They can also reduce trust – if you enter an opaque market, you might be unsure if the price you're offered is fair. On the other hand, some argue that in certain cases a bit of opacity can encourage liquidity providers (e.g., in some bond markets, anonymity can entice big traders to participate without revealing their positions). Regulators often push for more transparency, since it's generally a condition for a "free market to be efficient".
- In summary, transparent markets openly share price and product information (like a stock market with publicly visible quotes), whereas opaque markets operate with less public information (like private sales or certain OTC trades). Transparency tends to correlate with fairness and efficiency, while opacity can lead to distrust or the need for relationship-based trading. Modern reforms in finance (and even blockchain technology in cryptocurrency markets) often aim to increase transparency so that all players have equal access to information.
- Simple vs. Complex Markets:
- Near-Related Systems and Counter-Examples:
- Gift Economy: In a gift economy, goods and services are given without any explicit monetary payment or direct quid pro quo. This is essentially the opposite of a market transaction. Participants in a gift economy might share or gift products out of generosity, reciprocity, or social norms, rather than selling for profit. For example, within a family or tight-knit community, people may freely share food, labor, or skills without charging each other. Some online communities (like open-source software developers) operate partly on a gift economy model, contributing work for free. In a gift economy, exchanges occur without monetary compensation, and value is created through social bonds or reputation rather than price. While markets supplant gift economies in many domains (because markets can handle scale and strangers), gift exchange persists in contexts where relationships or cultural practices prioritize generosity over commercial exchange.
- Planned Economy: A planned economy (or command economy) is one where central authorities (like the government) make decisions about production and allocation, instead of these decisions emerging from decentralized market transactions. In a fully planned economy, there may be no markets for many goods at all; the government decides what is produced, in what quantity, and often sets administered prices or rations goods to citizens. The classic examples are the former Soviet Union or other communist economies where state planners allocated resources according to a central plan. Such an economy is "controlled by central authorities without the influence of market forces". This means price signals are replaced by directives: factories receive quotas, and consumers might receive ration coupons or fixed prices. Planned economies aim for equitable distribution or to meet specific production goals, but without market price signals they often struggled with shortages or surpluses (since it's hard to aggregate information as efficiently as a market does). Most modern economies are not purely planned, though some sectors (like public education, infrastructure, or defense) are provided by the state outside of markets.
- Sharing Economy (in certain forms): The term "sharing economy" often refers to peer-to-peer platforms that do involve markets (like Uber or Airbnb, which are essentially market platforms). However, the pure sharing economy can also mean community-based sharing where services or assets are shared without monetary exchange. For example, platforms like Couchsurfing enable people to host travelers for free (hospitality exchange), and communities like Freecycle allow people to give away items they don't need, free of charge, to others who want them. These are near-related to markets in that goods and services change hands, but the exchange is not driven by price – it's driven by the idea of sharing excess capacity or helping others. As such, in a sharing economy (in this sense), goods and services are shared rather than sold. The incentive is often building community or mutual aid, not profit. This challenges the traditional market model by removing the price mechanism, at least among participants (though often the platform itself may be supported by donations or ads).
- Subsistence Economy: A subsistence economy is one where individuals or families produce primarily for their own consumption rather than for exchange in a market. In a pure subsistence setting, there are minimal market transactions because people grow their own food, build their own shelter, and make what they need, trading little with others. Production is primarily for personal use and not for market trade. Small self-sufficient farms or isolated communities might operate this way. Because subsistence economies don't rely much on trade, the concept of market prices is less developed – if you're consuming what you produce, you don't sell it, so no market price is set. This is a counter-example to a market economy because there is no specialization or exchange driving allocation; each unit (family) is its own producer and consumer. Of course, in practice even subsistence farmers usually do some trading (for tools or salt, etc.), but the scale is limited.
- Barter System: Barter is a system of exchange where goods or services are traded directly for other goods or services, without using money as a medium. Barter is actually a form of market exchange (since it's voluntary trading), but it's often seen as a precursor to money-based markets. In barter, there is no universal price signal – the "price" is implicit in the rate of exchange (e.g., 2 chickens for 1 sack of rice). Barter arrangements require a double coincidence of wants (each party has what the other wants), which makes them inefficient for large societies. In a barter system, goods are exchanged directly without a monetary medium. Some small or trust-based communities use barter, and even in modern times, during monetary crises, people revert to barter (e.g., trading goods when currency is unstable). While barter can be considered a simple type of market, it lacks the standard price unit that modern markets use, so it's a counterpoint to how most markets function with currencies.
- Natural Monopoly situations: A natural monopoly occurs when, due to the nature of an industry (often high fixed costs and economies of scale), a single provider is most efficient for the whole market – typical examples are utilities like water, electricity distribution, or rail infrastructure in a city. In these situations, a competitive market may not form effectively because the largest firm will undercut others until it dominates (it's inefficient to have multiple parallel infrastructures). Such situations often lead to either a single private company dominating (which then must be regulated) or the service being provided by the government. In either case, normal market competition is absent. These are situations where market mechanisms cannot function effectively or are absent. For example, it wouldn't make sense to have two competing companies each building their own set of electrical grids in the same area – one grid is enough, and the market can't support duplicates, so one company becomes the sole provider. Since a true market (with multiple competitors) fails here, regulators step in with price controls or the service is nationalized, which is a departure from a free market outcome.
- Public Goods and Externality Scenarios: Some goods are public goods – they are non-excludable and non-rivalrous (one person's use doesn't reduce availability to others, and people cannot be easily excluded from using them). Classic examples: national defense, clean air. Markets struggle with public goods because it's hard to charge people (free-rider problem), so these goods tend to be underproduced in a pure market environment. Similarly, externalities (spillover effects like pollution) are not priced by the market, leading to overuse or underuse relative to the social optimum. In situations dominated by public goods or externalities, market mechanisms are absent or fail to produce efficient outcomes. For instance, a purely free market will not likely provide an optimal level of lighthouses or flood control levees – there's no incentive for a private seller to provide it since they can't easily make each beneficiary pay. As a result, non-market solutions (government provision, subsidies, etc.) are used. These scenarios are counter-examples in the sense that they highlight limits of markets – where government intervention or alternative allocation mechanisms must fill the gap.
- Definition and Overview:
- Citations:
[1] http://www.gabormelli.com/RKB/Economic_Market [2] https://en.wikipedia.org/wiki/Market_(economics) [3] https://www.investopedia.com/terms/m/market.asp [4] https://www.economicsonline.co.uk/competitive_markets/rationing_and_incentives.html/ [5] https://livingeconomics.org/article.asp?docId=232 [6] https://www.investopedia.com/terms/p/pricediscovery.asp [7] https://en.wikipedia.org/wiki/Transparency_(market) [8] https://www.economicforces.xyz/p/prices-are-signals-and-politicians [9] https://corporatefinanceinstitute.com/resources/economics/market-structure/ [10] https://www.investopedia.com/terms/f/freemarket.asp [11] https://www.investopedia.com/terms/r/regulated-market.asp [12] https://www.investopedia.com/terms/i/inefficientmarket.asp [13] https://www.investopedia.com/terms/l/liquidmarket.asp
2024
- (Wikipedia, 2024) ⇒ https://en.wikipedia.org/wiki/Market_(economics) Retrieved:2024-5-14.
- In economics, a market is a composition of systems, institutions, procedures, social relations or infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services (including labour power) to buyers in exchange for money. It can be said that a market is the process by which the prices of goods and services are established. Markets facilitate trade and enable the distribution and allocation of resources in a society. Markets allow any tradeable item to be evaluated and priced. A market emerges more or less spontaneously or may be constructed deliberately by human interaction in order to enable the exchange of rights (cf. ownership) of services and goods. Markets generally supplant gift economies and are often held in place through rules and customs, such as a booth fee, competitive pricing, and source of goods for sale (local produce or stock registration).
Markets can differ by products (goods, services) or factors (labour and capital) sold, product differentiation, place in which exchanges are carried, buyers targeted, duration, selling process, government regulation, taxes, subsidies, minimum wages, price ceilings, legality of exchange, liquidity, intensity of speculation, size, concentration, exchange asymmetry, relative prices, volatility and geographic extension. The geographic boundaries of a market may vary considerably, for example the food market in a single building, the real estate market in a local city, the consumer market in an entire country, or the economy of an international trade bloc where the same rules apply throughout. Markets can also be worldwide, see for example the global diamond trade. National economies can also be classified as developed markets or developing markets.
In mainstream economics, the concept of a market is any structure that allows buyers and sellers to exchange any type of goods, services and information. The exchange of goods or services, with or without money, is a transaction. [1] Market participants or economic agents consist of all the buyers and sellers of a good who influence its price, which is a major topic of study of economics and has given rise to several theories and models concerning the basic market forces of supply and demand. A major topic of debate is how much a given market can be considered to be a "free market", that is free from government intervention. Microeconomics traditionally focuses on the study of market structure and the efficiency of market equilibrium; when the latter (if it exists) is not efficient, then economists say that a market failure has occurred. However, it is not always clear how the allocation of resources can be improved since there is always the possibility of government failure.
- In economics, a market is a composition of systems, institutions, procedures, social relations or infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services (including labour power) to buyers in exchange for money. It can be said that a market is the process by which the prices of goods and services are established. Markets facilitate trade and enable the distribution and allocation of resources in a society. Markets allow any tradeable item to be evaluated and priced. A market emerges more or less spontaneously or may be constructed deliberately by human interaction in order to enable the exchange of rights (cf. ownership) of services and goods. Markets generally supplant gift economies and are often held in place through rules and customs, such as a booth fee, competitive pricing, and source of goods for sale (local produce or stock registration).
2012
- http://en.wikipedia.org/wiki/Market
- A market is one of many varieties of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services (including labor) in exchange for money from buyers. It can be said that a market is the process by which the prices of goods and services are established.
For a market to be competitive, there must be more than a single buyer or seller. It has been suggested that two people may trade, but it takes at least three persons to have a market, so that there is competition on at least one of its two sides.
However, competitive markets rely on much larger numbers of both buyers and sellers. A market with single seller and multiple buyers is a monopoly. A market with a single buyer and multiple sellers is a monopsony. These are the extremes of imperfect competition.
Markets vary in form, scale (volume and geographic reach), location, and types of participants, as well as the types of goods and services traded. Examples include:
- Physical retail markets, such as local farmers' markets (which are usually held in town squares or parking lots on an ongoing or occasional basis), shopping centers and shopping malls.
- (Non-physical) internet markets (see electronic commerce)
- Ad hoc auction markets
- Markets for intermediate goods used in production of other goods and services
- Labor markets
- International currency and commodity markets.
- Stock markets, for the exchange of shares in corporations.
- Artificial markets created by regulation to exchange rights for derivatives that have been designed to ameliorate externalities, such as pollution permits (see carbon trading)
- Illegal markets such as the market for illicit drugs, arms or pirated products.
- In mainstream economics, the concept of a market is any structure that allows buyers and sellers to exchange any type of goods, services and information. The exchange of goods or services for money is a transaction. Market participants consist of all the buyers and sellers of a good who influence its price. This influence is a major study of economics and has given rise to several theories and models concerning the basic market forces of supply and demand. There are two roles in markets, buyers and sellers. The market facilitates trade and enables the distribution and allocation of resources in a society. Markets allow any tradable item to be evaluated and priced. A market emerges more or less spontaneously or is constructed deliberately by human interaction in order to enable the exchange of rights (cf. ownership) of services and goods.
Historically, markets originated in physical marketplaces which would often develop into — or from — small communities, towns and cities.[citation needed]
- A market is one of many varieties of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services (including labor) in exchange for money from buyers. It can be said that a market is the process by which the prices of goods and services are established.
1944
- (Hayek, 1944) ⇒ Friedrich Hayek. (1944). "The Road to Serfdom."
- NOTE: It argued for the importance of free markets and price signals in conveying information and coordinating economic activity, cautioning against central planning and excessive government control.
1936
- (Keynes, 1936) ⇒ John Maynard Keynes. (1936). "The General Theory of Employment, Interest and Money.” In: Book Publication.
- NOTE: It introduced the concept of aggregate demand and its influence on economic output and employment, advocating for government intervention in markets during economic downturns.
1890
- (Marshall, 1890) ⇒ Alfred Marshall. (1890). "Principles of Economics."
- NOTE: It provided a comprehensive analysis of market equilibrium, price elasticity, consumer and producer surplus, and the role of time in market adjustments.
1776
- (Smith, 1776) ⇒ Adam Smith. (1776). "An Inquiry into the Nature and Causes of the Wealth of Nations." In: Book Publication.
- NOTE: It laid the foundations for understanding how markets operate through the "invisible hand" of self-interest, leading to efficient resource allocation and labor division.
- ↑ "Transaction", Oxford Dictionaries. Retrieved 25 October 2014.