CONCEPT OF MARKET AND MAJOR MARKETS IN AN ECONOMY

Market

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The word ‘market’ does not refer only a particular market place in which things are bought and sold but the whole of any region in which buyers and sellers are in such free intercourse with one another that the price of the same goods tends to equality easily and quickly. A market is any one of a variety of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on buyers offer their goods or services (including labor) in exchange for money from buyers.

Major (macroeconomic) market in an economy:
The followings are major macroeconomic market in an economy
Commodity market:

Modern commodity markets began with the trading of agricultural products, such as corn, cattle, wheat and pigs in the 19th century. In commodity market, standardized, graded products are bought and sold by the organized traders'.

Labor market:

Labor market is a market where workers find paying work, employers find willing workers, and where wage rates are determined. Labor markets may be local or national (even international) in their scope and are made up of smaller, interacting labor markets for different qualifications, skills, and geographical locations. They depend on exchange of information between employers and job seekers about wage rates, conditions of employment, level of competition, and job location. So labor market brings together employers and people who are looking for employment.

Money market:

Money market refers to a set of institutions, conventions, and practices whose aim is to facilitate the lending and borrowing of money on a short-term basis. The money market is, therefore, different from the capital market, which is concerned with medium- and long-term credit. The transactions that occur on the money market involve not only banknotes but assets that can be turned into cash at short notice, such as short-term government securities and bills of exchange.

Bond market:

The market in which bonds are traded before their maturity is known as bond market. If interest rates decline after a bond has been issued, the value of bonds already issued with higher rates of interest will rise, and hence the bond market is said to be “up.” A rise in interest rates will lower the value of bonds issued with lower rates of interest and send the bond market “down.”

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CONCEPT OF MARKET AND MAJOR MARKETS IN AN ECONOMY
Foreign exchange market:

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The foreign exchange market (currency, forex, or FX) trades currencies. It lets banks and other institutions easily buy and sell currencies. The purpose of the foreign exchange market is to help international trade and investment. A foreign exchange market helps businesses convert one currency to another. For example, it permits a U.S. business to import European goods and pay Euros, even though the business's income is in U.S. dollars. In a typical foreign exchange transaction a party purchases a quantity of one currency by paying a quantity of another currency.

Circular flow of economic activities
To grab the concept of market in the context of economics a model, named circular flow of economic activities, can be taken into consideration. The relationship between output and resource markets can be described by this circular flow diagram. This diagram illustrates the very important interdependence between output and resource markets. Firms purchase resources in resource markets so that they can produce the output that is sold in the output markets. Because of this, we say that the demand for resources is a derived demand that is derived from the demand for final output. The demand for autoworkers, for example, increases when the demand for automobiles rises.

Expenditure

Payments of Goods & Services Goods & Services
Product /output Market Factor Market (land, labor, capital, entrepreneurship)

Revenue

Households

Earnings

Firms
Cost

Resource Services

Payments of Resource Services
(rent, wage, interest, profit)

Figure: Circular flow of economic activities

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CONCEPT OF MARKET AND MAJOR MARKETS IN AN ECONOMY

2.1

The circular flow diagram above also illustrates another point that should be remembered: households are the source of supply in the resource market and firms are the source of demand. Note that these roles are the opposite of the roles played by both households and firms in the output market.

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