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 A market is one of the many varieties of systems, institutions,
procedures, social relations and infrastructures whereby parties engage
in exchange.

 Most markets rely on sellers offering their goods or services (including
labor) in exchange for money from buyers.

 It can be said that a market is the process by which the prices of goods
and services are established.
 For a market to be competitive, there must be more than a single
buyer or seller.

 It takes at least three persons to have a market, so that there is
competition in at least one of its two sides.

 Competitive markets, as understood in formal economic theory,
rely on much larger numbers of both buyers and sellers.

 A market with a single seller and multiple buyers is a
monopoly. A market with a single buyer and multiple
sellers is a monopsony.
Most common markets
 Physical retail markets
 Physical wholesale markets
 (Non-physical) internet markets (see electronic commerce)
 Markets for intermediate goods used in production of other goods and
 Labor markets
 International currency and commodity markets
 Stock markets
 Illegal markets such as the market for illicit drugs, arms or pirated
Market Size
 It can be given in terms of the number of buyers and sellers in a
particular market or in terms of the total exchange of money in the
market, generally annually (per year).

 When given in terms of money, market size is often termed
market value, but in a sense distinct from market value of individual
Market Types
 Markets of varying types can spontaneously arise whenever a party has
interest in a good or service that some other party can provide.

 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 during negotiation.
The structure of a well-functioning market is defined by the theory
of perfect competition.

Well-functioning markets of the real world are never perfect, but
basic structural characteristics can be approximated for real world
markets, for example:

 many small buyers and sellers
 buyers and sellers have equal access to information
 products are comparable
Market Equilibrium
Market equilibrium
 The exact equilibrium between the supply of an item and its
 There is neither surplus nor shortage in the market prices stay the
 There are not external influences
1.10 0 1000
1.00 100 900
90 200 800
80 300 700
70 400 600
60 500 500
50 600 400
40 700 300
30 800 200
Explanation of the graph
Movements and shifts
 Surplus: If the market price is above the equilibrium price, quantity
supplied is greater than quantity demanded, creating a surplus. Market
price will fall.
 Example: Say you are a producer with an excess inventory. The logical solution would
be to lower the prices to sell more, increasing the demand until equilibrium is

 Shortage: if the market price is below the equilibrium price, quantity
supplied is less than quantity demanded, creating a shortage.
Consequently, market price will rise because of this shortage.
 Example: Being a producer and not having stock on inventory. As a result, you may
increase the price to decrease the demand until equilibrium is reached.

Government factor that can influence surplus or shortages
 Price Floor: legally imposed minimum price on the market.
Transactions below this price is prohibited.
 set floor price above the market equilibrium price if too low
 Price floors are most often placed on markets for goods that are an
important source of income for the sellers, such as labor market. E.g
minimum wage
 Price floor generate surpluses on the market.

Example 1: Fast food market. If the price of Chinese food increased, how would
this affect the pizza market?
 Step 1: Will this affect the demand or supply curve?
Chinese food is a substitute for pizza, so the price of chinese food affects
the demand curve
 Step 2: In what direction will the affected curve move?
The price of chinese food, a substitute, INCREASES, so the demand for
pizza INCREASES, or the demand curve shifts right.

Example 2: Fast food market. Chinese food gains popularity, how
would this affect the pizza market?
 Step 1: Will this affect the demand or supply curve?
The chinese food business is an alternative to the pizza business, affecting
the supply curve
 Step 2: In what direction will the affected curve move?
Increased popularity of Ch, means that some from pizza will switch foods.
Thus, the supply of pizza decreases, therefore shifting to the left

Example 3. Demand for pizza increases AND the supply of pizza
decreases. What happens to the market for pizza?

 An increase in demand will increase equilibrium price and increase
 A decrease in supply will increase equilibrium price and decrease
 Put both together the equilibrium price will increase but the affect on
quantity is uncertain, it is dependent on whether the shift in demand is
smaller or larger than the shift in supply.

Pros and Cons of Free Market
 Allows the opportunity for the sellers to get a place in market and
become competitive,
 Reduces conflicts with the demmand and expands the number of
options the client has for a product,
 Gives the opportunity to enterprises, small business, to improve
themselves and create/generate new alternatives for an own growth,
 Sellers get adapted to different situations, and manage to solve them.
 There is no real control on the market (the price of an specific product),
 Also eliminates a lot of people chance to reach the client and offer their
product/service because of the really different prices that are in the
 The are attached to conditions that are established during the
competitiveness between sellers.
 How can a free market reflect the values and needs from certain
 Can the free market model seek wealth, efficiency, equity and welfare?
 Which are the opportunity costs when we decide to use a free market
 In which cases, or industries, or examples would be desirable to use this
 Which subjects should never be analyzed with this model? Why?
References and Sources
 Fullerton College. (n.d.). Market equilibrium. Retrieved August 28, 2014, from
 Chapter 3.3: Market Equilibrium. (n.d.). State University of New York. Retrieved
August 28, 2014, from
 Microeconomics by Robert S. Pindyck, Daniel L. Rubinfeld

 Aspers, Patrik (2011) Markets Cambridge: Polity Press.
 Reindhart, Uwe E.. (2011). How Convincing Is the Case for Free Trade?.
27/08/2014, de Economix Blogs NYTimes Sitio
 Clark, Josh. (2013). Is a market "free" if it's regulated?. 27/08/2014, de How Stuff
Works Web Site Sitio web: