2.1 concept of market and major markets in an economy,
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CONCEPT OF MARKET AND MAJOR MARKETS IN AN ECONOMY 2.1
Market
The word ‘market’ does not refer only a particular market place in which things arebought 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 equalityeasily and quickly.
A market is any one of a variety of systems, institutions, procedures, social relationsand infrastructures whereby parties engage in exchange. While parties may exchangegoods 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 ascorn, 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 willingworkers, and where wage rates are determined. Labor markets may be local or
national (even international) in their scope and are made up of smaller, interactinglabor markets for different qualifications, skills, and geographical locations. Theydepend on exchange of information between employers and job seekers about wagerates, conditions of employment, level of competition, and job location. So labormarket 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 tofacilitate the lending and borrowing of money on a short-term basis. The moneymarket is, therefore, different from the capital market, which is concerned with
medium- and long-term credit. The transactions that occur on the money marketinvolve not only banknotes but assets that can be turned into cash at short notice, suchas 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 issuedwith higher rates of interest will rise, and hence the bond market is said to be “up.” Arise in interest rates will lower the value of bonds issued with lower rates of interestand send the bond market “down.”
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CONCEPT OF MARKET AND MAJOR MARKETS IN AN ECONOMY 2.1
Foreign exchange market:
The foreign exchange market (currency, forex, or FX) trades currencies. It lets banksand 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 toanother. For example, it permits a U.S. business to import European goods and payEuros, even though the business's income is in U.S. dollars.
In a typical foreign exchange transaction a party purchases a quantity of one currencyby 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 betweenoutput and resource markets can be described by this circular flow diagram. Thisdiagram illustrates the very important interdependence between output and resourcemarkets. Firms purchase resources in resource markets so that they can produce theoutput that is sold in the output markets. Because of this, we say that the demand forresources is a derived demand that is derived from the demand for final output. Thedemand for autoworkers, for example, increases when the demand for automobilesrises.
Households Firms
Payments of Goods & Services
Payments of Resource Services
Goods & Services
R e v e n u e
Resource Services
E x p e n
d i t u r
e
E a r
n i n
g s
C o s t
(land, labor, capital, entrepreneurship)
(rent, wage, interest, profit)
Product /output
Market
Factor Market
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 beremembered: households are the source of supply in the resource market and firms arethe source of demand. Note that these roles are the opposite of the roles played byboth households and firms in the output market.
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