MEANING OF MARKET

MEANING OF MARKET

• We have seen in Chapter 1 that people cannot have all that they want because they need to pay price for goods and services and the resources at their disposal are scarce. We have come across some goods which are free or having zero prices i.e. we need not make any payment for them. 
• Example: air, sunlight etc. These are called free goods. Free goods being abundant in supply does not have scarcity and need no cost to obtain them. In contrast, economic goods are scarce in relation to their demand and have an opportunity cost.
•  Unlike free goods, they are exchangeable in the market and command a price. What do we understand by the term price and why do people pay a price?
• In common parlance, price signifies the quantity of money necessary to acquire a good or service. Price connotes money-value i.e. the purchasing power of an article expressed in terms of money. 
• In other words, price expresses the value of a thing in relation to money i.e. the quantity of money for which it will exchange. Value in exchange or exchange value, according to Ricardo, means command over commodities in general, or power in exchange over purchasable commodities in general.
• We need to distinguish between two important concepts namely, ‘value in use’ and ‘value in exchange’. Value in use refers to usefulness or utility i.e the attribute which a thing may have to satisfy human needs.
•  Thus, value in exchange or economic value is measured by the most someone is willing to give up in other goods and services in order to obtain a good or service. In a market economy, the amount of currency (e.g. Dollar, Rupees) is a universally accepted measure of economic value, because the number of units of money that a person is willing to pay for something tells how much of all other goods and services they are willing to give up to get that item.
• In Economics, we are only concerned with exchange value. Considerations such as sentimental value mean little in a market economy. Sentimental value is subjective and reflects an exaggerated judgment about the worth of a commodity.
• Exchange value is determined in the market where exchange of goods and services takes place. In our day to day life, we come across many references to markets such as oil market, wheat market, vegetable market etc.
•  These have connotations of a place where buyers and sellers gather to exchange goods at a price. In Economics, markets are crucial focus of analysis, and therefore we need to understand how this term is used. A market is a collection of buyers and sellers with the potential to trade. The actual or potential interactions of the buyers and sellers determine the price of a product or service.
• A market need not be formal or held in a particular place. Second-hand cars are often bought and sold through newspaper advertisements. Second-hand goods may be disposed ou by listing it in an online shop or by placing a card in the local shop window.
•  In the present high tech world, goods and services are euortlessly bought and sold online. Online shopping has revolutionized the business world by making nearly everything people want available by the simple click of a mouse button.
• While studying about market economy, it is essential to understand how price is determined. Since this is done in the market, we can define the market simply as all those buyers and sellers of a good or service who influence price.

The elements of a market are:

(i) Buyers and sellers;

(ii) A product or service;

(iii) Bargaining for a price;

(iv) Knowledge about market conditions; and

(v) One price for a product or service at a given time.

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