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Understanding Markets
A market is defined as the sum total of all the buyers and sellers in the area or region under
consideration. The area may be the earth, or countries, regions, states, or cities. The value, cost
and price of items traded are as per forces of supply and demand in a market. The market may be
a physical entity, or may be virtual. It may be local or global, perfect and imperfect. Every
transaction has two sides – the buying side and the selling side. Other names used are the
consumer and producer sides. A market is where the consumer and the producer interact. The
consumer would like to pay low prices (given all else the same). The producer would like to
receive high prices In every transaction there is a struggle between the desires of producers and
consumers in terms of the market price. The market is a mechanism that balances out the two
desires.
1) Consumer-Producer Rivalry:
Consumers like to pay low prices, but consumers can not offer too low of
prices because eventually producers would not make the good available. Producers like high
prices, but producers cannot require too high of prices because eventually consumers would not
purchase the good. Consumers and producers are simultaneously trying to take advantage of each
other. They are limited by reputation and bargaining skills. As a consequence of bargaining,
each gets less than they want, but not more than it is worth, or less than it costs.
2) Consumer-Consumer Rivalry:
Consumers compete with each other for products. In the process, the
purchasing consumer pays more than (s) he wants, but not more than it is worth to him or her.
Consumer pays low prices. But in a world of scarcity (wants being greater than resources
available to satisfy all those wants) consumers are pitted against each other in an attempt to
capture the goods and services they want. This leads consumers to BID-UP prices in the presence
of a relatively large amount of consumers. Think about professional sports. Owners are the
frontline consumers of the athletes. Years ago when one owner had the right to resign the player
forever the player received much less than occurs in a world a free agency.
3) Producer-Producer Rivalry:
Producers compete with each other, and as a consequence, offer
better quality, and higher quantities at a lower price. But, if there are many producers of a
product then each, in an attempt to gain buyers, will tend to lower the price to attract those
consumers from other producers. Think about fast-food establishments in an area. As a casual
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observation, it seems to me the more producers you have in an area, the lower the prices. This
may take affect by using coupons or other special deals, but the producers try to get your
business. And in other words Producer−producer rivalry is a multiple sellers of a product
competing to sell their good to a scarce number of consumers. One seller of a product competing
to sell their good to a scarce number of consumers.
4) Government and Market:
When agents are either side of the market find themselves disadvantage in
the market process, they frequently attempt to induce government to intervene on their behalf.
For Example, the market for electricity in most towns is characterized by a sole local supplier of
electricity, and thus there is no producer-producer rivalry. Consumer group may initiate action
by public utilities in setting prices. Similar, procedure may lobby for government assistance to
place them in better barginning position relatives to consumer and foreign producers. Thus, In a
modern economics government also plays a role in disciplining the market process.
Gross Domestic Product (GDP):
Gross domestic product is the best way to measure a country's
economy. GDP is the total value of everything produced by all the people and companies in the
country. It doesn't matter if they are citizens or foreign-owned companies. If they are located
within the country's boundaries, the government counts their production as GDP.
Gross National Product (GNP):
Gross national product (GNP) is an estimate of total value of all the final
products and services produced in a given period by the means of production owned by a
country's residents. GNP is commonly calculated by taking the sum of personal consumption
expenditures, private domestic investment, government expenditure, net exports and any income
earned by residents from overseas investments, minus income earned within the domestic
economy by foreign residents. Net exports represent the difference between what a country
exports minus any imports of goods and services.
