11. Market and market structures

In short, markets can be classified according to certain structural characteristics that are shared by most firms in the market. Economists have names for these different market structures: pure competition¹, monopolistic competition², oligopoly, and monopoly.

An important category of economic markets is pure competition. This is a market situation in which there are many independent and well-informed buyers and sellers of exactly the same economic products. Each buyer and seller acts independently. They depend on forces in the market to determine price. If they are not willing to accept this price, they do not have to do business.

To monopolize means to keep something for oneself³. A person who monopolized a conversation, for example, generally is trying to stand out from⁴ everyone else and thus attract attention⁵.

The term market, as used by economists, is an extension of the ancient idea of a market as a place where people gather to buy and sell goods. Today, however, markets such as the world sugar market, the gold market¹ and the cotton market do not need to have any fixed geographical location. Such a market is simply a set of conditions permitting buyers and sellers to work together.

12. Demand and supply

Most people think of demand as being the desire for a certain economic product. That desire must be coupled with¹ the ability and willingness to pay. Effective demand, that is desire plus ability and willingness to pay, influences and helps to determine prices.

In economics the relationship of demand and price is expressed by the Law of Demand. It says that the demand for an economic product varies inversely² with its price. In other words, if prices are high the quantities demanded will be low. If prices are low the quantities demanded will be high.

Supply means the quantity of a product supplied at the price prevailed at the time. The law of supply states that the quantity of an economic product offered for sale varies directly with its price. If prices are high suppliers will offer greater quantities for sale. If prices are low, they will offer smaller quantities for sale.

13. Market price

In a market economy prices act as signals. A high price, for example, is a signal for producers to produce more and for buyers to buy less. A low price is a signal for producers to produce less and for buyers to buy more.

In most economic systems, the prices of the majority of goods and services do not change over short periods of time. In some systems it is of course possible for an individual to bargain over prices, because they are not fixed in advance. In general terms, however, the individual cannot change the prices of the commodities he wants.

In economics, the term «price» denotes the consideration in cash (or in kind) for the transfer of something valuable, such as goods, services, currencies, securities, the use of money or property for a limited period of time

Prices perform two important economic functions: they ration scarce resources, and they motivate production.