What is a market?
The second Basics lesson: is a market only stalls and counters, who meets there, and why three bakers on one street are good for the buyer. In the simplest words.
On Sunday Rafiqa took her basket and went to the neighbourhood market. There is a farmer selling tomatoes, a butcher selling meat and hundreds of buyers. Everything is noisy, and everyone is bargaining. This is a market. But the meaning of the word "market" is much wider than these stalls.
What is a market?
Put simply, a market is the place where a person who wants to sell meets a person who wants to buy. There, things are exchanged for money.
The person who sells is called the seller. The person who buys is called the buyer. If both are there, there is a market. If one is missing, there is no market: a seller without buyers sits idle all day, and a buyer without sellers goes home empty-handed.
Is a market only stalls?
No. The meeting place can be different. Let us look at one week of Rafiqa's life:
| Day | What she got | Where | Who the seller is |
|---|---|---|---|
| Monday | bread | the neighbourhood bread shop | the baker |
| Wednesday | winter boots | an online shop on her phone | a shoe shop |
| Friday | a haircut | a barbershop | the barber |
| Sunday | tomatoes and meat | the farmers' market | the farmer and the butcher |
On all four days Rafiqa is the buyer, and the others are sellers. The places are different, but the idea is the same: someone sold, and someone paid money and bought. So all four are markets. In an online shop the seller and the buyer do not see each other at all, but they still count as having met.
Who wants what at the market?
The two sides want opposite things:
- The buyer wants to get a good thing more cheaply.
- The seller wants to sell his thing at a higher price.
The price appears where these two wishes meet. If the buyer says "too expensive", he goes to another stall. If the seller says "too cheap", he does not sell. Where both agree, a sale happens.
Why are many sellers good for the buyer?
Imagine there is only one baker on your street. He can make his bread quite expensive, because the buyer has nowhere else to go. Now three bakers open on the same street. Each one tries to win buyers: he makes tasty bread, keeps the price reasonable and is polite.
This contest between sellers for the buyer is called competition. In a market with competition the buyer can choose, and the seller has to work better.
Why do we need a market?
Rafiqa cannot grow tomatoes herself, and the farmer cannot eat all his tomatoes himself. The market brings the two together, and both win.
Thanks to the market, everyone does the work they know best: the farmer grows crops, the baker bakes bread, the barber cuts hair. Everything else they need, they buy at the market for money.
In the next lesson
In the third Basics lesson we will look at the most important question of the market: what a price is and how it appears.
Test yourself
5 questions on this topic: pick an option or reveal the answer.
In a hypothetical market, demand is Qd = 120 − 2P and supply is Qs = 20 + 3P (P in thousand soums, Q in units). The government sets a price ceiling of P = 10 thousand soums. What happens in the market at this price?
In a hypothetical city the bread market is held by three bakeries with market shares of 50%, 30% and 20%. What is the Herfindahl–Hirschman index (the sum of the squares of the shares in percent)?
In a hypothetical market the producers' supply curve is P = 10 + 0.5Q (P in thousand soums, Q in units). If the market price is 30 thousand soums, what is the producer surplus (the area of the triangle between the supply curve and the price line)?
In a hypothetical market the demand function for shirmon bread is P = 50 − Q (P in thousand soum, Q in units). The market price is 30 thousand soum. What is consumer surplus (the area of the triangle below the demand curve and above the price line)?
In the melon market from the previous question (Qd = 100 − 2P, Qs = 20 + 2P), what happens if the price is held fixed at 15 thousand soums?
Answered: 0 / 50 of 5 correct
All tests →See also
Sources
- General economic concept · examples, names and figures compiled by the author, hypothetical