Markets are a human system of interacting human participants where prices are determined through competition. A market is simply a group of systems, mechanisms, processes, infrastructures or institutions where parties engaged in transaction exchange. Most markets function on the basis of buyers and sellers providing their products or services for value to buyers in return for payment. There may be no government regulation, as well as the ability to intervene in the market mechanism.
Markets do not provide opportunities for creating goods and services that people need yet cannot afford. Instead markets allow people to compete for scarce goods and services causing an increase in productivity and reducing the gap between rich and poor. Market can also facilitate trade by regulating the prices of raw materials and facilitating trade in manufactured goods. They also enable entrepreneurs to get credit to fund the start-up and marketing of their enterprise.
The word ‘market’ brings to mind the idea of exchange of products and services at an agreed rate. However, markets are much more than just an exchange of commodities. There are four different types of markets namely economic, business, political and international markets. Economic market is the place where buyers and sellers come together to make a purchase of goods and services that neither cancels nor changes hands without any intervention by the other side. The price of the good/services remains fixed and there is no question of one person controlling over the goods and the other.
On the other hand, business market involves the process of inter-banking and credit extended by banks between different countries. Business markets ensure that production and sales remain at the level needed to support the level of income and employment in the country. This type of market failure occurs when there are inefficiency, excessive overproduction, inflation, excessive dependence on foreign trade (e.g. overproduction of basic raw materials) or inefficiency in the allocation of resources (e.g.
Political markets deal with the buying and selling of power through political transactions, which involve purchases and transactions of a type not dissimilar to markets for durable goods. The essence of political transactions selling goods is that it takes place within a state system and is facilitated by the state machinery. In such cases, goods are usually traded as a form of insurance on the performance of the state machinery, which usually guarantees smooth transactions. International markets refer to the world markets where domestic productions are equal to foreign productions. Such transactions involve buying and selling by entities other than the contracting parties.
A broad range of activities involving the production, sale, distribution and marketing of goods take place in the market systems. Production is directed towards meeting the needs and requirements of the users while consumers buy and supply goods to other buyers. Distribution channels include sales by companies to the end users; buyers include individuals, groups and institutions. The nature of the products and services determines the functioning of the markets.