Market
See "Marketplace" article for the traditional meaning of the word.A
market is, as defined in
economics, a social arrangement that allows buyers and sellers to discover information and carry out a voluntary exchange of
goods or
services. Along with a
right to own property, it is one of the two key institutions that organize
trade. Allowing markets to arrive at a
pareto efficient outcome is one of the key components of
capitalism.
Function
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 less sophisticated 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.
An economic system in which goods and services are exchanged by market functions is called a
market economy. An alternative economic system in which non-market forces (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.
Types of Markets
Although many markets exist in the traditional sensethere are various other types of them and various organizational structures to assist their functions.
A market can be organized as an
auction, 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. Markets may be distorted by a seller or sellers with
monopoly power, or a buyer with
monopsony power. Markets in which the normal process of price negotiations do not arrive at efficient outcomes are said to experience
market failure.
While
barter markets exist, most markets use
currency or some other form of
money to achieve the efficient outcome.
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.
*
Financial market*
Stock market*
Media market*
Marketplace*
Street market*
Market square*
Market town*
Microeconomics by Robert S. Pindyck, Daniel L. Rubinfeld
