The market is a process that operates when there are people who act as buyers and others as sellers of goods and services, generating the action of exchange .
Traditionally the market was understood as a place where the processes of exchange of goods and services take place, between demanders and suppliers, but with the appearance of technology, markets no longer need a physical space.
However, for that reason, there is a market as long as there are intentions to buy and sell; and the participants agree to carry out the exchanges, at an agreed price.
Undoubtedly, the exchange takes place because both participants obtain a benefit, that is, both parties win.
The basis of the market is exchange
Indeed, human beings from ancient times realized the need to exchange, because exchange improved their living conditions.
1. Exchange by barter
In the same way, markets arose before money appeared, since people gathered in certain places in their communities carrying part of what they produced and exchanged it for what they could not produce.
In reality, the first exchanges were made through barter, that is, they exchanged one good for another; or by direct exchange.
2 . Exchange with money
Of course, when money appeared, exchanges were facilitated, since the exchange was indirect and this provided the possibility of expanding exchanges in both time and space.
On the other hand, indirect exchange allowed the evolution and improvement of markets, making them more efficient.
For the market to operate, you need someone to buy and someone to sell, and these two parts are what make up the market.
On the one hand, the buyer is the person who acts in a market with the intention of acquiring a good or service in exchange for giving another good (if it is by barter) or by paying an amount of money (if it is by indirect exchange). to say that when someone buys, this person considers that the good they are receiving is worth more than the good or the price they are delivering.
Furthermore, we call buyers in the marketplace plaintiffs, and plaintiffs maximize their utility when they buy at cheap prices.
Now, the seller for his part is the subject who is willing to deliver one good for another (exchange by barter), or in exchange for a quantity of money (indirect exchange). On the one hand, the seller considers that the good or the money he is receiving has more value than the good or service he offers.
Thus, sellers are known in the market as bidders and every bidder maximizes his utility when he manages to sell at the highest prices in the market.
The main markets can be classified into the market for goods and services and the market for factors of production.
1. Market for goods and services
Therefore, the market for goods and services is where you buy different types of goods and services that are produced in the market. Therefore, the suppliers or sellers in this market are the companies that carry out the activity of the production of these products and then offer them in the market, placing a price on them.
On the other hand, the claimants are generally the individuals and families who need these goods and services for their consumption.
But institutions and companies that need these goods and services for their consumption, commercialization or to be used as an input in a subsequent production process are also demanding.
2. Market of factors of production
On the other hand, in the market for production factors, productive factors such as raw materials, capital and labor are exchanged. Then, these factors are combined by the companies to be able to carry out their productive tasks.
Of course, in the case of the labor market, the suppliers are the individuals and families who sell these factors of production and charge a price for them. While companies function as the plaintiffs, since they are willing to pay a price, in order to obtain the factors of production.
Markets for factors of production can therefore be divided into three:
- Raw materials market.
- Financial markets: Divided in turn into a money market for short-term investments and a capital market for longer-term ones. See types of financial markets.
- Working market.
To see more information about market rates, you can follow the following link:
Why is it possible to exchange
On the one hand, it seems that the exchange could not be carried out because the interests that move the buyer and the seller are opposite.
1. Contrary interests
Above all, the seller seeks to get a high price and the buyer a low price, however, that is where the market phenomenon works. Because finally the participants reach an agreement on prices.
2. The market price benefits the buyer and seller
In any case, the agreed price benefits both the applicant and the offeror and for this reason exchanges are carried out, generating wealth for those who offer the goods and services and those who demand them; making us all cooperate in the market for the profits made.
Consequently, the price where the buyers and suppliers agree, is called the equilibrium price in the market and at that price all participants are satisfied and willing to carry out the exchange action.
Finally, we can say that the market is a very important mechanism for making proper use of scarce resources. When there is a lot of demand, the price rises and this guides the producers to produce more of this good. In the same way, when there is a lot of supply, prices immediately begin to fall and the favorable price for the market in general is restored.
When demand falls, the price also falls and suppliers know that it is not convenient to produce more of this good, because the market is well supplied. For this reason the supply decreases and again the price tends to rise and achieve an equilibrium.
If we realize it, the market allocates resources efficiently, when prices are freely established by conditions of supply and demand.
Historical exchange regimes in Mexico