Introduction to Unit II: International Marketing

Markets, Competition and Trade

Part I: Definition of Market:

Related terms and expressions:

volatility trade

black markets wholesale market

barter auction
product differentiation government intervention
virtual markets transaction

A market is a place (or any structure) where buyers and sellers can meet to facilitate the
exchange of goods and services.
In economics, a market is a composition of systems, institutions, procedures, or infrastructures 
whereby parties engage in exchange.
While parties may exchange goods and services by 1………………………………….. , most markets rely
on sellers offering their goods or services to buyers in exchange for money. The exchange of
goods or services, with or without money, is a 2………………………………….. .
Markets facilitate 3………………………………….. and enable the distribution and allocation of
resources in a society. Markets allow any tradeable item to be evaluated and priced.
Markets can differ due to many factors such as: products, 4………………………..……….. , size, place
in which exchanges are carried, buyers targeted, selling process, government policies and
regulations, taxes, minimum wages, relative prices, 5………………………..……….. and geographic
extension.
There can be  6…………………….…….………., where a good is exchanged illegally; and 7…………………….
……………. such as eBay, in which buyers and sellers do not physically interact during negotiation.
A market can be organized as a commodity 8……………………………………., as a retail market, as
a private electronic market, as an 9……………………………………., as complex institutions such as
international markets and as an informal discussion between two individuals.
A major topic of debate is how much a given market can be considered to be a "free market",
that is free from 10…………………….……………. . This debate has given rise to several economic
theories and philosophies and thereafter government policies.
Adapted from Wikipedia

Part II: Markets and Competitors (Handout selected from Business Vocabulary in Use pages 48-49)

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Part III: Fundamental Theories Related to Market Regulation:
Related terms and concepts:

Economic protectionism The laissez-faire policy

Free market economy Economic interventionism
‘’The invisible hand’’ Trade barriers
Capitalism Mixed economy
Subsidy (sing)/ Subsidies (pl) Mercantilism

Communism Tax relief / break

Left wing Karl Marx

Laissez-faire Policy:
The laissez-faire policy is an economic system in which transactions between private groups
of people are free from (or almost free from) any form of 1……………………………………………………………
such as regulations and 2……………………………………………………… (A 3………………………………………….. or
government incentive is a form of financial aid or support extended to an economic sector
generally with the aim of promoting economic and social policies. It comes in various forms
including cash grants, interest free-loans or low-interest loans, insurance,
4…………………………………………………; etc. )

The advocates of laisser-faire policy hold the following principles to defend their claim:
+ Markets should be competitive.
+ Markets should be free: Freedom should be maximized including the freedom to fix prices,
freedom of production and freedom of consumption.
+ Markets should be allowed to self-regulate.

Laisser-faire capitalism emerged in the mid-18th century and was further popularized by Adam
smith’s book The Wealth of Nations (1776)

Adam Smith is a Scottish economist and philosopher known as the father of

5…………………………………………………. and economic liberalism. He introduced the concept of
6……………………………………………………... in his book The Theory of Moral Sentiments (1759) and
used it as a metaphor to argument against interventionism and government regulation of
markets and to support the 7………………………………………………………….. . He believed that when an
individual acts in accordance with one’s self-interest, he unintentionally produces socially
beneficial results and benefits the community. The constant individual pressure on market
supply and demand causes the natural movement of prices and the flow of trade. In other
words, the approach holds that the market will find equilibrium without government or other

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interventions. Indeed, he believed in the divine idea that the hand of God or else some “unseen
forces” will work to move the market and make this happen.

The common belief before 1759 was that pursuing one's own interest was considered against
the common good. Later, the concept has been used by the advocates of liberal economy to
mean that the pursuit of individual interest leads to the general good.

Economic Interventionism or State Interventionism:

Economic interventionism is an economic policy favouring government intervention in the
market economy in an effort to achieve a variety of political and economic objectives such as:

+ Impacting economy and promoting economic growth

+ Correcting market failure
+ Reducing corruption and illegal practices
+ Increasing employment
+ Regulating wages
+ Raising or reducing prices
+ Promoting the general welfare of people

Laissez-faire and free market capitalism advocates oppose this policy as they assume that
the state and the economy should be inherently separated from each other and that the
government actions should not disturb the market forces at play with regulations, subsidies and
price controls.

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8……………………………………………………..

Capitalist market economies that feature high degree of state intervention are often referred to
as a type of 8…………………………………………………………… since it is a combination of free market
principles and principles of socialism (A 9…………………………………………………….. social, economic
and political theory that calls for public rather than private ownership or control of property,
important businesses and natural resources. The means of production, distribution and
exchange should be owned or regulated by the government or the community. This doctrine is
also based on the belief that all people are equal and should have an equal share of a country’s
money. In 10…………………………………………………’s political and socioeconomic theory, socialism is a
transitional state of society between the overthrow of capitalism and the establishment of
11…………………………………………………).

A mixed economy may emerge when a capitalist government intervenes to disrupt free
markets by introducing state-owned enterprises (such as public health or education systems),
regulations, subsidies, tariffs, and tax policies. Alternatively, a mixed economy can emerge
when a socialist government makes exceptions to the rule of state ownership to capture
economic benefits from private ownership and free market incentives. A combination of free
market principles of private contracting and socialist principles of state ownership or planning is
common to all mixed economies.

Trade Protectionism
Historically, protectionism was associated with economic theories such as
12………………………………………………………. which focused on achieving a positive trade balance and
accumulating gold by limiting imports and maximizing exports and was mainly advocated by
parties that hold economic populist or left wing positions (In modern politics, the left wing is
typically reserved for anti-capitalist movements or Republicanism in France. Leftists are mainly
movements such as socialism, communism, the labor movement, syndicalism; etc. While the
right wing political groups are generally anti-communist. Economically, the right wing political
parties generally support free trade, free enterprise and private ownership).

Protectionism is the economic policy of restricting imports from other countries by imposing
protectionist 13………………………………………………….. that come in several forms such as tariffs on
imported goods, import quotas, product standards, licenses; etc, all seeking to make foreign
goods more expensive or available in a limited supply to domestic consumers.

Economic protectionism is adopted in an effort to promote the economy of the nation above all
other economies, i.e. to restrict international trade in order to help domestic industries and to
protect the domestic economy, create domestic jobs, increase gross domestic product (GDP)
and make the domestic economy more competitive globally.

On the other hand, critics argue that over the long term, government protectionist policies can
hurt the people it is intended to protect by slowing economic growth and increasing price
inflation making free trade a better alternative.