Markets
Markets allows buyers and sellers to carry
out a voluntary exchange of goods or services. It is one of the two
key institutions that organize trade, along with the right to own property.
In everyday usage, the word "market" may refer to the location where
goods are traded, sometimes known as a marketplace, or to a street market.
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 allocated 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 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.
In supermarkets in industrialized
countries, such as this one in Netherlands, the seller periodically
changes prices for classes of goods in response to market conditions,
rather than negotiating the price of each good with each buyer. Although
many markets exist in 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 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.
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 they are very gay and very unsociable.
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