A market is an assemblage of institutions, processes, systems or relationships through which groups of individuals or groups to exchange goods and services for payment. In simple terms, it can be defined as a marketplace where buyers and sellers come together to make deals. While most markets generally depend on buyers providing their goods and/or services for purchase by other buyers, some markets are based on sellers supplying their products or services to buyers for payment in lieu of money.
It is essential for the system to have an interaction among enough buyers and sellers to ensure that there is enough market price for each good to be purchased by an individual in the market. But there are also instances when the producer surplus or consumer surplus is higher than the demand. Such excess may arise from the excess production, surplus taxes, and excess subsidies. The government can resolve such discrepancies by either fixing a level of producer surplus or the government can control price levels through regulation. If the latter is used, price level adjustments are often made through market reviews.
Market price is not determined through direct negotiations between producers and consumers. Rather, market prices are established by the intervention of market makers (the producers of specific goods and services) and the government in order to ensure that sufficient market demand exists for a particular product. In cases when the government controls too many resources or when the producers do not have enough capital to invest, the government can influence market prices through the operation of market operations or the intervention of state-run banks.
But in most cases, consumers set market prices on their own. Market price is not determined by the amount of marketable goods available or the degree of competition among producers. What is the market price is determined by the consumers’ overall satisfaction with the services and products they purchase. Therefore, the price level is not determined by demand and supply conditions.
If there is plenty of money in the market, the prices will be able to absorb them and the surplus will be available to purchase more goods. When money is tight, a central bank is needed to intervene in the market and increase the supply of money to consumers. This increases demand for goods and this causes the prices to increase. Central banks can either reduce the interest rates they charge on loans or use other tools like currency depreciation to stimulate the economy.
In an open market, supply and demand remain constant. There may be fluctuations due to events beyond the control of the consumers. These situations lead to overproduction and a rise in prices. Central banks must therefore intervene in the market to reverse any adverse effects on market prices.
Changes in market prices occur because the supply and demand for particular goods and services changes. An important concept of economics is the law of demand and supply. It says that the price level should adjust to the level of demand, which will result in increased production. When the supply is cut by economic conditions, production will decrease and the market price level will decrease.
Money is the most important economic commodity in the market and most people are affected by its price. People buy and sell in the market to make money and to obtain necessary commodities. The market price is determined by supply and demand. When the supply is cut by an unfavorable event, the price level will drop and it is important for the central bank to intervene in the market to increase the supply in order to increase the market price.