1.1 The nature of markets
Outline the meaning of the term market.
So, what is a market?
A market is any effective arrangement for bringing buyers and sellers together, not necessarily face-to-face, to enable trade to take place.
The forces of supply and demand meet and react in a market. Prices are established and buyers and sellers give signals and incentives to each other. Markets can involve face-to-face dealings between buyers and sellers, or may be postal or even electronic.
The market mechanism allocates
resources without any actions by government or other authorities. To
deepen your learning you may look up the invisible hand as described by
Adam Smith in his grounbreaking book The Wealth of Nations
Objectives of consumers
Rational consumers want to get the most from their money and a RATIONAL CONSUMER wants the highest quality at the lowest price: they are said to maximise their utility from a given income
Objectives of producers
Firms want to get the maximum from the resources that they use. In financial terms they want to maximise profit. This means that they may want to sell for as high a price as possible.
These defining objectives drive the forces of supply and demand and through them the allocation of resources.