What is a Market?

What is a Market?

what is a marketA market is a place (physical or virtual) where buyers meet sellers to purchase a good or service.

An example of a market is a sharemarket where shareholders buy and sell company shares. Another example is a farmer’s market, where farmers, growers and small producers of cheese, wine, jams and so on bring their produce to sell directly to people.

A market is also where the transaction of a second hand car takes place.

In any market there are buyers and sellers. They interact to determine the price to settle the transaction.


What is a market economy?

This where we start to consider microeconomics.

economics Producers and consumersTo understand what a market economy is you must learn about the forces of demand and supply and how they interact with each other.

The market economy works through the way consumers and producers go about their business. Producers make what consumers want to buy.


The Price Mechanism

Producers will only be involved in a market if they can make a profit. The Price MechanismIn contrast, Consumers want to by goods and services at the lowest price they can.

Free market economics maintains that there is little need for government. The market economy will manage itself.

This is because consumers and producers must negotiate and set a price to complete the transaction.

The market price is the price to sell the product made by the producers and ‘clear the market’. This is the price mechanism in a market economy. Adam Smith an early economist called this the ‘invisible hand’.


Types of Economic System

In a market economy, business and consumers through markets work out what is made and sold to consumers. Only those consumers who can pay the market price of a product will get the product.

In a total market economy, there is little or no government involvement. Therefore, only those able to pay for the good or service can afford education, health, food and shelter.

Mostly countries do see a need for some government intervention as weaker members of society need some protection to live a good life. Governments may also have regulations for business and also offer services to the public such as postal, health and education services.  The economy is called a mixed economy where governments participate in the economy.

In a command economy the government runs the economy and produces all goods and services and allocates them to people. This is quite rare now and the example used for a command economy is the country North Korea.

To learn more, take this Introductory Microeconomics Tutorial Course with explanatory videos, infographics and quizzes.

The Market Economy

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