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Greetings, I welcome you to my padlet wall. We will be discussing about market, what it is, its structures, labor market, circular flow model of market economy, market economy and different types of market. Stay tuned as we begin exploring.

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Video#2 THE CIRCULAR FLOW MODEL OF A MARKET ECONOMY

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Video#2 THE CIRCULAR FLOW MODEL OF A MARKET ECONOMY

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In this video circular flow model of a market economy demonstrates the flow of money between firms and households. The households provide scarce resources that firms need in order to make their products that is land, labor and capitol. These are exchanged in a resource market where firms buy the resources using money and households sell and earn income. In a product market, households buy the products using the income and firms becomes sellers. There is a mutual benefit, firms make profit from the products so that they can expand their businesses and households gain a stress free quality of life.

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The Circular Flow Model of a Market Economy

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In this labor market graph there is a negative slope in demand because, high wage rate forces firms to sell their products at high price, this makes people to buy less; as a result firms makes less profits and when productivity is low firms will not want too much labor. In supply of labor wage rate will decrease only if competitive firms offer higher prices and labor will increase if low prices are offered. this affects the equilibrium.

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In this topic I have learned that market is not just going and buying and selling things. This topic is very broad but interesting in how market are classified and work. In each different type of market the goal is to make profit. Buyers and seller benefit from each other in the demand and supply if goods.
I was surprised to learn that within the market there are structure like monopolistic and oligopoly etc which made me understand why so much stores in my area sell similar goods and charges different prices; for example apples, just by growing apples naturally and chemical free can have an advantage in the market place with a slightly higher price than chemical sprayed apples. The quality of goods in the market can make firms charge different prices.
If I had to pass this knowledge to my friends and family, I would definitely tell them to look for products that have quality and not to buy
because the products are on sale. And that similar products in the market are not similar you have to check for the quality of it.

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The stock market is where companies go public to sell their shares of their company in order to raise money so that they can expand their businesses. Through advertising, promotions and reviews the stock markets can become highly demanded and more people can be interested in the companies stocks, so the companies would make money by raising the prices of their shares and the people who bought the initial public offer (original) shares will make a profit because the value of their share has also increased. In the same way shares can lose money if the companies are not making profit because less people will invest in it and original shares will lose their value too.

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WHAT IS THE STOCK MARKET? | The Stock Market Explained

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In market economy supply and demand are the market forces that determine the price. Supply refers to the produce and the services made while demand is the company and the people that needs the goods and the services. There's a lot of freedom, creativity and people respond to market changes since there's no government  interference. On the contrary, a lot of people struggle with the basic needs since this market does not provide services. There is not enough infrastructure, there's no competition and this can lead to a downfall of the economy.

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This image shows a clear path of how a circular flow model works. Money flows from house holds to firm and back to firms from house hold.

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There are four basic types of market structures that describes economy and help firms make decisions. Firstly, perfect competition, in this structure no firm is above the other, a lot of firms compete against each other, in selling similar goods and they earn similar profits. So, no firm influence the market place. Secondly, Monopolistic competition, in this market certain firms have market power to dissociate themselves by charging slightly higher prices due to their slight differentiation of their goods over other firms e.g. slight difference in coffee taste. Next, Oligopoly, out of many firms, five may dominate the market over other firms. They can choose to collaborate of compete against each other. They can block the exit and entry to the market. Lastly, Monopoly, this firm is self dependent and mainly controlled by the government, they set their own prices and they have no competitions        so they dominate the entire market, e.g. Canada Post.

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There are quite a few different market structures that can characterize an economy. However, if you are just getting started with this topic, you may want to look at the four basic types of market structures first: perfect competition, monopolistic competition, oligopoly, and monopoly. Each of them has its own set of characteristics and assumptions, which in turn affect the decision making of firms and the profits they can make.

It is important to note that not all of these market structures exist in reality; some of them are just theoretical constructs. Nevertheless, they are critical because they help us understand how competing firms make decisions. With that said, let's look at the four market structures in more detail.

1. Perfect Competition

Perfect competition describes a market structure, where a large number of small firms compete against each other. In this scenario, a single firm does not have any significant market power. As a result, the industry as a whole produces the socially optimal level of output, because none of the firms can influence market prices.

The idea of perfect competition builds on several assumptions: (1) all firms maximize profits (2) there is free entry and exit to the market, (3) all firms sell entirely identical (i.e., homogenous) goods, (4) there are no consumer preferences. By looking at those assumptions, it becomes obvious that we will hardly ever find perfect competition in reality. That is an essential aspect because it is the only market structure that can (theoretically) result in a socially optimal level of output.

Probably the best example of a market with an almost perfect competition we can find in reality is the stock market. If you are looking for more information on perfect competition, you can also check our post on perfect competition vs. imperfect competition.

2. Monopolistic Competition

Monopolistic competition also refers to a market structure, where a large number of small firms compete against each other. However, unlike in perfect competition, the firms in monopolistic competition sell similar but slightly differentiated products. That gives them a certain degree of market power, which allows them to charge higher prices within a specific range.

Monopolistic competition builds on the following assumptions: (1) all firms maximize profits (2) there is free entry, and exit to the market, (3) firms sell differentiated products (4) consumers may prefer one product over the other. Now, those assumptions are a bit closer to reality than the ones we looked at in perfect competition. However, this market structure no longer results in a socially optimal level of output because the firms have more power and can influence market prices to a certain degree.

An example of monopolistic competition is the market for cereals. There is a vast number of different brands (e.g., Cap'n Crunch, Lucky Charms, Froot Loops, Apple Jacks). Most of them probably taste slightly different, but at the end of the day, they are all breakfast cereals.

3. Oligopoly

An oligopoly describes a market structure that is dominated by only a small number of firms. That results in a state of limited competition. The firms can either compete against each other or collaborate (see also Cournot vs. Bertrand Competition). By doing so, they can use their collective market power to drive up prices and earn more profit.

The oligopolistic market structure builds on the following assumptions: (1) all firms maximize profits, (2) oligopolies can set prices, (3) barriers to entry and exit exist in the market, (4) products may be homogenous or differentiated, and (5) only a few firms dominate the market. Unfortunately, it is not clearly defined what a "few firms" means precisely. As a rule of thumb, we say that an oligopoly typically consists of about 3-5 dominant firms.

To give an example of an oligopoly, let's look at the market for gaming consoles. This market is dominated by three powerful companies: Microsoft, Sony, and Nintendo. That leaves all of them with a significant amount of market power.

4. Monopoly

A monopoly refers to a market structure where a single firm controls the entire market. In this scenario, the firm has the highest level of market power, as consumers do not have any alternatives. As a result, monopolies often reduce output to increase prices and earn more profit.

The following assumptions are made when we talk about monopolies: (1) the monopolist maximizes profit, (2) it can set the price, (3) there are high barriers to entry and exit, (4) there is only one firm that dominates the entire market.

From the perspective of society, most monopolies are not desirable because they result in lower outputs and higher prices compared to competitive markets. Therefore, they are often regulated by the government. An example of a real-life monopoly could be Monsanto. This company trademarks about 80% of all corn harvested in the US, which gives it a high level of market power. You can find additional information about monopolies in our post on monopoly power.

Summary

There are four basic types of market structures: perfect competition, imperfect competition, oligopoly, and monopoly. Perfect competition describes a market structure, where a large number of small firms compete against each other with homogenous products. Meanwhile, monopolistic competition refers to a market structure, where a large number of small firms compete against each other with differentiated products. An Oligopoly describes a market structure where a small number of firms compete against each other. And last but not least, a monopoly refers to a market structure where a single firm controls the entire market.

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The Four Types of Market Structures - Quickonomics

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There are quite a few different market structures that can characterize an economy. However, if you are just getting started with this topic, you may want to look at the four basic types of market structures first: perfect competition, monopolistic competition, oligopoly, and monopoly.

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Website#3 ADVANTAGES AND DISADVANTAGES OF MARKET ECONOMY

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Website#3 ADVANTAGES AND DISADVANTAGES OF MARKET ECONOMY

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In a market economy people will buy goods based on their income and if they can afford it, and sellers will sell if they can get maximum profits from goods. The advantage of this is that as the economy grows and changes, people are willing to upgrade their skills to  the new updated technologies so that they don't lose their jobs. Resources are well managed, firms compete and ensures they produce the best products in the market. The downfall to this is that there's high exploitations of resources when more goods are demanded and produced, which is not good for the environment; and if consumers suddenly slow down the buying of goods, firms are left with too much products which are sold at a lower price and this reduces their marginal revenue.

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Market economy is an economy in which the questions of what to produce, how to produce and for who to produce are guided solely by the invisible hand of market forces of demand and supply without any external intervention.

Market economy is one of the three ways in which a society can organize its economic system, the other being a command economy and a mixed economy.

The most popular proponent of the market economy is Adam Smith, who famously coined the concept of 'the invisible hard' which refers to the force that automatically allocates resources to production based on the demand and supply. Under the market economy, the what, how and who are answered as follows:

What to produce? Goods that generate the highest profit because they have the highest demand.

How to produce? To maximize the profit by improving quality to be able to charge higher price, reducing costs by adopting more efficient means, etc.

For whom to produce? For consumers who have liberty to consume whatever they consume.

However, for the market economy to work, there must be no barriers to entry for producers and consumers and there must be many producers and consumers of which no one is big enough to dictate the market price.

In a pure market economy, the extreme case called laissez faire (which literally means let go) economy, the role of government is only to enact and enforce laws and regulations to ensure property rights. In such an economic structure, there is no role whatsoever for government, i.e. there are no regulations, no taxes, no minimum wages, no tariffs, etc.

Advantages

The major advantages of a market economy include:

Resources are automatically allocated to their most efficient use because goods which the consumers want are produced.

The consumers have a wide range of choices of products depending on their preferences and no one dictates them what to study, where to work, when to work, what to consume, etc.

The profit motive and the self-interest of the market participants encourage innovation which fuels economic growth.

Competition ensures better quality products (because producers fear loss of customers), hard-working labor (because they fear being laid off if not being productive enough) and hence high efficiency.

Disadvantages

Market economy in its pure form hardly exists anywhere, because it is not without its weaknesses which include:

Many economic activities result in negative externalities such as damage to the environment which is not priced in the market economy automatically and hence government regulation is needed to save environment.

Breakthroughs in technology have the potential to results monopolies which are in many cases exploitative in absence of effective anti-trust legislation.

Where the return on capital is higher than the economic growth, it results in increase in income and wealth disparity between different segments of the society which may destabilize the economy in the long-run. This is the point made by Thomas Piketty in his book 'Capital in the Twenty-First Century'.

The automatic allocation of resources is a double-edged sword, it may result in certain not-very-profitable yet vital sectors left-off without enough resources which might have serious consequences over the long-run, for example education, health care, etc.

The system is prone to crises due to several factors, for example, the profit motive may result in adoption of automation and worker exploitation thereby dropping the disposable income and hence reducing consumption and plunging the economy to a recession.

by Obaidullah Jan, ACA, CFA and last modified on
Studying for CFA ® Program? Access notes and question bank for CFA ® Level 1 authored by me at studyingalpha.com

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Market economy is an economy in which the questions of what to produce, how to produce and for who to produce are guided solely by the invisible hand of market forces of demand and supply without any external intervention.

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A market is a place where buying and selling of goods, services and exchanging of information happen. A market can have one buyer and a lot of sellers which is called a monopsony and in monopoly market one seller controls the market. There are several types of market namely, Auction market where the biggest bidder gets the product; Physical market is a structural place where consumers can go and buy their goods; Virtual market involves buying goods on the internet; Knowledge market exchange of information and services; Black market involves illegal exchange of goods; and financial markets which include stock, bond, foreign and predictive market

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A set up where two or more parties engage in exchange of goods, services and information is called a market. Ideally a market is a place where two or more parties are involved in buying and selling.

The two parties involved in a transaction are called seller and buyer.

The seller sells goods and services to the buyer in exchange of money. There has to be more than one buyer and seller for the market to be competitive.

Monopoly - Monopoly is a condition where there is a single seller and many buyers at the market place. In such a condition, the seller has a monopoly with no competition from others and has complete control over the products and services.

In a monopoly market, the seller decides the price of the product or service and can change it on his own.

Monopsony - A market form where there are many sellers but a single buyer is called monopsony. In such a set up, since there is a single buyer against many sellers; the buyer can exert his control on the sellers. The buyer in such a form has an upper edge over the sellers.

Types of Markets

1. Physical Markets - Physical market is a set up where buyers can physically meet the sellers and purchase the desired merchandise from them in exchange of money. Shopping malls, department stores, retail stores are examples of physical markets.

2. Non Physical Markets/Virtual markets - In such markets, buyers purchase goods and services through internet. In such a market the buyers and sellers do not meet or interact physically, instead the transaction is done through internet. Examples - Rediff shopping, eBay etc.

3. Auction Market - In an auction market the seller sells his goods to one who is the highest bidder.

4. Market for Intermediate Goods - Such markets sell raw materials (goods) required for the final production of other goods.

5. Black Market - A black market is a setup where illegal goods like drugs and weapons are sold.

6. Knowledge Market - Knowledge market is a set up which deals in the exchange of information and knowledge based products.

7. Financial Market - Market dealing with the exchange of liquid assets (money) is called a financial market.

Financial markets are of following types:

1. Stock Market - A form of market where sellers and buyers exchange shares is called a stock market.

2. Bond Market - A market place where buyers and sellers are engaged in the exchange of debt securities, usually in the form of bonds is called a bond market. A bond is a contract signed by both the parties where one party promises to return money with interest at fixed intervals.

3. Foreign Exchange Market - In such type of market, parties are involved in trading of currency. In a foreign exchange market (also called currency market), one party exchanges one country's currency with equivalent quantity of another currency.

4. Predictive Markets - Predictive market is a set up where exchange of good or service takes place for future. The buyer benefits when the market goes up and is at a loss when the market crashes.

Market Size

The market size is directly proportional to two factors:

Number of sellers and Buyers

Total money involved annually

Authorship/Referencing - About the Author(s)

The article is Written By "Prachi Juneja" and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.

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What is a Market - Definition and Different types of Markets

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A set up where two or more parties engage in exchange of goods, services and information is called a market. Ideally a market is a place where two or more parties are involved in buying and selling. The two parties involved in a transaction are called seller and buyer.

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The reason I chose these videos and websites is because these provide optimal understanding of what I was looking for in this research out of so many websites and videos I went through. They are thorough and detailed with easy to understand.

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Labor market is the demand and supply of labor whereby employer provide the demand and employees provide supply. At a macroeconomic level labor is viewed on unemployment. Theres high levels of unemployment when economy is low, which leads to low GDP and low levels of living standards, this causes financial crisis. In microeconomics firms will employ based on how much their products are in demand. High productivity of quantity demanded will yield more employment. At microeconomic people are willing to work when wages are higher compared to low wages. Firms will hire only if their marginal revenue products exceed marginal costs.

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Labor Market Explained: Theories and Who Is Included

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The labor market refers to the supply of and demand for labor, for which employees provide supply and employers provide demand. Labor is a major part of the economy.