Market

The word market, in economics, indicates the place (also in a figurative sense) and at the same time also the moment in which the economic-commercial exchanges of raw materials, goods, services, money, financial instruments, etc., of the particular economic subsystem of reference. In other words, market is one of the many varieties of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange. In an economy, a market system is any systematic process that enables many market players to bid and ask. In other words, a market system is a place (virtual or physical) that facilitates the matching of buyers and sellers. Many markets exist, and each can be defined based on several characteristics, such as what is being exchanged in the market, the regulations, who is allowed to participate, and how transactions occur.

One defining component of markets is the medium of exchange, or the price. Both buyers and sellers look at the price to determine whether or not they want to trade. A seller has a certain minimum price at which s/he is willing to sell, though s/he would happily accept more. Likewise, a buyer has a certain maximum price at which s/he is willing to buy, though s/he would happily pay less. If the minimum the seller would accept is less than the maximum a buyer would pay, a transaction can occur. Markets help such buyers and sellers meet to trade.

In market systems, prices are discoverable; both buyers and sellers are capable of finding out the current price at which a transaction could occur. Publishing current prices is a key component with a market system. The chosen prices impact the immediate group of buyers and sellers, but also may impact long term supply and demand decisions within the market.

Another important component of market systems is that there is competition, which serves as the main regulatory mechanism. Based on the level of competition in a market system, economists have identified several different types of structures, such as monopoly, oligopoly, and perfect competition.

The market in the geographical and economic sense finds its origin and justification in the phenomenon of exchange and the development of its organization is parallel to that of trade. Economic literature distinguishes perfect markets, i.e. those characterized by perfect competition, from imperfect markets in the various forms of monopolistic competition, monopoly, oligopoly, etc.. The former, although theorized until the early decades of the twentieth century as a typical form of market, are difficult to find in a real economic system. In fact, the competitive situation in which the various market players find themselves can determine the prevalence of one or other of them in the search for maximum advantage.

In a capitalist system, in any case, the market (a free market in the sense that the forces of supply and demand are free to operate) and the price system are responsible for coordinating the decisions of producers and consumers, as well as for overseeing the optimal allocation of resources, i.e. the maximum efficiency of their use.

A distinction is also made between the money market (or credit market) in which the object of negotiation are short-term monetary loans, and the financial market (or capital market) in which the funds offered and requested are long-term (shares and bonds, negotiated in the so-called securities market, medium- and long-term mortgages, etc.).

In the context of the policy of controlling the circulation of money and credit, open market operations are the buying and selling of government bonds by the central bank (in practice, a reduction in the amount of money in circulation through sale; an increase through purchase).

Market system

A market system (or market ecosystem) is any systematic process enabling many market players to bid and ask: helping bidders and sellers interact and make deals. It is not just the price mechanism but the entire system of regulation, qualification, credentials, reputations, and clearing that surrounds that mechanism and makes it operate in a social context.

Market mechanism

The market mechanism is a mechanism (and a basic concept of microeconomics) by which the use of money exchanged by buyers and sellers with an open and understood system of value and time trade-offs in a market tends to optimize the distribution of goods and services in at least some ways. The mechanism can exist in free markets or in captive or controlling markets that seek to use supply and demand, or some other form of charging for scarcity, to choose among production possibilities. In a free-market economy, all the resources are allocated by the private sector (individuals, households, and groups of individuals); in a planned economy, all the resources are owned by the public sector (local and central government); and, in a mixed economy, some resources are owned by both sectors, private and public. In reality, the first two are mostly theoretical and the third is common. Resources are allocated according to the forces of supply and demand.

Market structure

Market structure has historically emerged in two separate types of discussions in economics, that of Adam Smith on the one hand, and that of Karl Marx on the other hand.

In finance, a distinction is also made between the restricted market, complementary to the official stock exchange market and which has an anomalous regime, the primary market, in which the underwriting and placement of newly issued securities, subject to public offer of subscription, and the secondary market, in which the negotiation of securities already in circulation takes place.

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