EconGuru Economics Guide » Market and economic systems

Market and economic systems

Market is an institution that facilitates buying and selling. The form of market indicates the major characteristics of an economic system. It's one of the primary subjects of both Microeconomics and Macroeconomics.

It must fulfils 3 tasks:

1. Come up with a scheme how prices are determined: competition or monopoly or any schemes other than these, but there has to be a scheme.
2. Provide a public place where buyers and sellers congregate and interact: mall, fair exhibit, stock exchange, eBay and so on.
3. Enforce freedom in decision-making: both buyers and sellers are in their own interest, and are free to determine what they would do.

Price is the soul of all markets. Major market institutions vary by nature of price - how it is determined, more precisely, the ratio of decisions that have a direct effect on price change over all decisions that an economy has to made. At one end of the spectrum, under perfect competition of an market economy, prices are determined by all decisions made by the economy or society with a ratio of 1. At the other end, in a command economy, prices are pretty much determined by a single decision with a ratio of virtually 0.