The market system
Introducing the market system
Defining a market system
A market system is a way to match buyers and sellers.
Learning objective
Identify the characteristics of a market system
Key points
• Publishing current prices is a key component with a market system.
• Competition is the primary regulatory mechanism in a market system.
• Economists recognize a number of different structures of market
systems based on characteristics such as the level of competition.
Key term
Price
, The quantity of payment or compensation given by one party to another in
return for goods or service
In an economy, a market system is any systematic process that enables many
market players to bid and ask. In other words, a market system is a place
(virtual or physical) that facilitates the matching of buyers and sellers. Many
markets exist, and each can be defined based on a number of characteristics,
such as what is being exchanged in the market, the regulations, who is
allowed to participate, and how transa ctions occur.
One defining component of markets is the medium of exchange, or the price.
In most American markets, the medium of exchange is dollars. Both buyers
and sellers look at the price to determine whether or not they want to trade.
A seller has a certain minimum price at which s/he is willing to sell, though
s/he would happily accept more. Likewise, a buyer has a certain maximum
price at which s/he is willing to buy, though s/he would happily pay less. If
the minimum the seller would accept is less than the maximum a buyer
would pay, a transaction can occur. Markets help such buyers and sellers
meet to trade.
In market systems, prices are discoverable; both buyers and sellers are
capable of finding out the current price at which a transaction could o ccur.
Publishing current prices is a key component with a market system. The
chosen prices impact the immediate group of buyers and sellers, but also may
impact long term supply and demand decisions within the market.
There are many examples of market systems. Perhaps the most famous is the
stock market in which buyers and sellers trade stocks . The prices at which
those sales occur is recorded, and is the basis for the stock price you may
have seen in the newspaper or on TV. There are markets for many types of
products other than stocks: the global oil market, your local farmers' market,
and eBay are all forms of markets with their own defining characteristics.
2
Introducing the market system
Defining a market system
A market system is a way to match buyers and sellers.
Learning objective
Identify the characteristics of a market system
Key points
• Publishing current prices is a key component with a market system.
• Competition is the primary regulatory mechanism in a market system.
• Economists recognize a number of different structures of market
systems based on characteristics such as the level of competition.
Key term
Price
, The quantity of payment or compensation given by one party to another in
return for goods or service
In an economy, a market system is any systematic process that enables many
market players to bid and ask. In other words, a market system is a place
(virtual or physical) that facilitates the matching of buyers and sellers. Many
markets exist, and each can be defined based on a number of characteristics,
such as what is being exchanged in the market, the regulations, who is
allowed to participate, and how transa ctions occur.
One defining component of markets is the medium of exchange, or the price.
In most American markets, the medium of exchange is dollars. Both buyers
and sellers look at the price to determine whether or not they want to trade.
A seller has a certain minimum price at which s/he is willing to sell, though
s/he would happily accept more. Likewise, a buyer has a certain maximum
price at which s/he is willing to buy, though s/he would happily pay less. If
the minimum the seller would accept is less than the maximum a buyer
would pay, a transaction can occur. Markets help such buyers and sellers
meet to trade.
In market systems, prices are discoverable; both buyers and sellers are
capable of finding out the current price at which a transaction could o ccur.
Publishing current prices is a key component with a market system. The
chosen prices impact the immediate group of buyers and sellers, but also may
impact long term supply and demand decisions within the market.
There are many examples of market systems. Perhaps the most famous is the
stock market in which buyers and sellers trade stocks . The prices at which
those sales occur is recorded, and is the basis for the stock price you may
have seen in the newspaper or on TV. There are markets for many types of
products other than stocks: the global oil market, your local farmers' market,
and eBay are all forms of markets with their own defining characteristics.
2
