Monday, 15 December 2014

Definition of market | Market Creation | Factors influencing Market

What is Market?
Normally people use the word 'Market' to refer to a physical place of shops where goods are bought and sold. You will say "I am going to the market" to tell that you are going to buy some grocery or goods at a particular place.

Other words that come to mind immediately may be world market, stock market and supermarket.

But, in economics, market is a much wider term which includes the whole lot of suppliers and buyers of goods and services doing business either offline or online with no physical contacts and so, it is not limited to any particular area. Due to this fact, a market can be defined to include or refer to the whole lot of interactions between potential suppliers and buyers of goods and services spread all over the world either online or offline.

Definition of market
A physical or nominal place where buyers and sellers interact to trade in goods or services for money or value of money and where the forces of supply and demand operate.

Need for Market
Goods and resources are of numerous types and every person can not have all his requirements at hand. He needs to procure his requirements from different places and from different people as he himself can't produce everything that he needs. So different sections of people indulged in producing different kinds of goods and services which they could easily do. Then they exchanged those things with one another to satisfy their needs. This gave birth to markets through which they interacted and indulged in supply and consumption of those goods and services through the medium of currency.

In primitive days, people used to exchange goods and services as such through a system known as barter system. But, gradually, they learnt about money and money value. Then, they started pricing goods and services in terms of money and began trading their goods and services in lieu of money or money value. They met at some fixed places and transacted their businesses. Thus markets came into being..

Market creation

Market gets created whenever two or more people get involved in buying and selling or interacting with goods and services.

For any market, the basic requirement is supply and demand. There should be supply of goods and services. And there needs to be some demand for those goods. Simple supply without demand does not make market. Nor mere demand without supply can create market. If there is nobody to buy your goods, it does not make any sense as there is no market creation for your stock. Similarly, you want or demand something. But nobody is there to supply you with your requirements. So, no market is available for you.

So, it is a primary condition that market needs both supply and demand for goods or services. When there are both buyers and sellers, market gets created. So, it is inherent that stock should be there to create demand and demand should be there to create stock. When both aspects are present, market gets created. Further, the knowledge about commodity should also be there so that buyers can demand it or a supplier can supply it.

Three basic requirements for market

From the above facts, you are able to see that to create a market, we requires these three fundamental features or basic requirements:

  • A market needs a commodity or stock to deal with.
  • Presence of buyers and sellers is essential for market.
  • Knowledge or awareness about the commodity should be there.

There is no need for physical presence of buyers and sellers at a particular place of the market. They can transact their business through online or mobile or through agents also. The basic requirement for market is a transaction between the buyer and the seller. The seller provides goods or services and the buyer purchases it by paying through cash or cheque or through any other means.

Now, coming to factors influencing market or the market conditions, there are many factors that govern market conditions and operations. Let us look at some of these factors that influence and govern markets.

Factors influencing market

Availability of resources and free trade facilities
A market implies meeting demands with supplies. So there should be enough stock of goods and resources for any market. The resources may be either raw materials being converted into goods or ready made goods imported from other places. So, the quantum of resources and supplies available makes your market sound or weak. Free flow of goods from one region to another region or one country to another without barriers makes markets strong.

Supply and demand
Supply and demand are most effective tools impacting market operations. Excessive supply or short supply and increased demand or decrease in demand can drastically change your market operations and equilibrium.

Political atmosphere
The political environment affects market conditions drastically. If there is political instability, the markets will be dwindling every moment in fear of unexpected revolts and disturbances.

Economic breakdowns
If the economy of the country is poor or disturbed, the markets will dwindle leading to unhealthy practices and corruption in dealings.

Natural calamities
Natural calamities like floods and drought can substantively disrupt and dwindle market conditions by destabilising the forces of supply and demand.

Government interference 
Government interference and restrictions affect the market atmosphere. Excessive controls or too much leniency can throw much influence on the operations of the market making it restricted market or free market.

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