2281 · 2.1
The market system
A market is wherever buyers and sellers trade. Prices rise when a product is scarce and fall when it is plentiful, and those price changes steer resources to where they are wanted without anyone planning it.
Need to know
What you need to know
- A market is any arrangement in which buyers and sellers trade a product — physical or not.
- Buyers provide demand, sellers provide supply, and price brings them together.
- The equilibrium price is the price at which quantity demanded equals quantity supplied.
- Examples: goods markets, labour markets, financial markets, housing markets.
Explanation
The market system
- Buyers bring demand and sellers bring supply; they meet at a price.
- A shortage pushes the price up; a surplus pushes it down.
- Price changes signal, give incentives and ration — the price mechanism.
- Microeconomics studies single markets; macroeconomics studies the whole economy.