Market (economics)
The uses of the term
The word "market" is commonly used to distinguish transactions between individuals from other ways of allocating goods and services. The term "market economy", for example, is often used to describe a society in which most business decisions are made by individuals and companies, rather than by the government - which, as a political regime, is generally known as "capitalism". It is also used as a noun to refer to an institution that facilitates such transactions, and as a verb to denote the activity of promoting them. In many contexts it is used as a way of making general statements that characterise a range of different arrangements.
Markets in the real world
Market characteristics
The concept of "market structure" concerns the proportion of the items that are supplied that comes from a single supplier, or the proportion of items acquired that goes to a single purchaser. Its practical importance derives from its association with "market power", which is the ability to influence the prices at which items change hands. (The policy implications of market power are discussed below in the article on competion policy.)
The principal markets
Product markets
Labour markets
Commodity markets
Financial markets
Markets in economic theory
The basic concept
In economic theory, a market exists when a would-be buyer makes contact with a would-be seller for the purpose of agreeing an exchange. In his Principles of Economics Alfred Marshall offered several definitions and gave a range of examples [1].
The Walrasian auctioneer
Market friction
"The market for lemons"
Perfect markets
Marshall also introduced the concept of a perfect market when he wrote .. the more nearly perfect a market is, the stronger is the tendency for the same price to be paid for the same thing at the same time in all parts of the market. The hypothetical ideal of a perfect market has since been developed to mean a situation in which:
- price is determined by the costless interaction of collective supply with collective demand;
- all information that is relevant to the price of a commodity is immediately known to all market participants;
- all market participants act rationally;
- it is impossible for any individual participants or groups of participants to influence the price of a product.