Types and relationships of markets. Types of market structures: perfect competition, monopolistic competition, oligopoly and monopoly

In a modern economically more or less developed state, there are several market systems. Types of markets, their classification, as well as highlighting the characteristics of each of them are an important element in understanding the state economy. The market, in essence, is the exact opposite of subsistence farming in one very significant respect. Subsistence farming distributes created products without taking into account the consumer's ability to choose them at will. Different types of markets can provide consumers with this opportunity.

Market: concept and types

Now let's look at the main types of markets, taking into account their characteristic features, since such a general description of the types of markets will give us the opportunity to see the overall structure of the economic system.

A market is a set of all kinds of relationships, forms, as well as organizations for mutually beneficial cooperation between people in terms of buying and selling a variety of goods and services. Depending on the volume of purchase and sale, the following main types of markets can be distinguished:

  • the market for services and goods, existing in the form of commodity exchanges, auctions, as well as fairs and all kinds of wholesale trade enterprises;
  • market of production factors (land, technology, minerals);
  • labor market;
  • market for NT innovations and developments.

In addition to this classification, types and types of markets can be distinguished by differences in competition:

  • free competition market (both sides of market relations have absolutely equal rights, i.e. both buyers and sellers);
  • market of imperfect competition (variations with monopoly markets).
  • Types and types of markets are distinguished by territorial basis:
  • world;
  • National;
  • regional;
  • local.

Of course, all types of markets and their characteristics are an important element in understanding how the market and, more broadly, the entire economic system functions. There is also another classification of market types, namely, according to the level of development and independence:

  • free market;
  • illegal market;
  • regulated market.

It should be said that the type of free market can be determined by the following criterion: it is characterized by maximum economic freedom (in the classical sense, of course). In other words, sellers are free to decide what to sell, to whom to sell it, and at what price. Buyers also have the same “freedoms”, since they themselves choose from whom to purchase which product. The state does not interfere in such a market, and there is no strict legal regulation.

The illegal market also includes “shadow” trade, in violation of the rules and established laws of purchase and sale. Like the free market, the illegal market is characterized by instability, some uncontrollability and even spontaneity.

However, all this was typical for markets until the 19th century; in the 20th, a new type of market relations, which is called regulated, entered the economic scene. Such a market is subject to certain laws and order, the violation of which is not allowed by legal regulations and the state. The trend towards increased manageability and control over the market was caused by a number of reasons, such as the expansion of the scale of the economy, as well as the strengthening of the social nature of market relations.

It should be noted that the types of markets and their features make it possible to monitor the historical perspective of economic development and predict the possibilities of market changes, and this, in turn, is extremely important, since this very change can be directed in the right direction.

Third question. Types and types of markets.

The concept of “market” combines the idea of ​​many different markets that differ from each other in various characteristics. All of them constantly interact with each other, linking into a single whole the system of all participants in market activity. Existing types of markets can be classified according to the following characteristics (criteria):

- according to economic purpose(by objects of purchase and sale): consumer products market, joint venture market, labor market, services market, investment market, scientific development market, financial and monetary market, securities market, currency market, spiritual goods market, information market.

- by geographical location: local, national, world markets. For example, the market of an individual city is local, of an individual country is national; If we consider the markets of all countries of the world - global.

- by industry- market of computers, grain, cotton, automobile, etc.

- by type of participants in market transactions- retail, wholesale, government procurement market.

In the retail market, goods are sold individually or in small quantities (such as in retail stores). In most cases, firms act as sellers in such markets. Buyers are individual people.

On wholesale market goods are sold in large quantities. Entire firms, as a rule, act as buyers and sellers in such markets.

In the government procurement market The buyer is the state, which purchases the products it needs for its activities.

The sellers in such a market are the manufacturers of these products.

- according to the degree of restriction of competition. Perfect competition (free) market, monopolistic competition market, oligopolistic market, absolute monopoly market.

The market differs from a natural economy (besides the fact that these systems are opposite to each other) - one thing is that the market is able to provide its participants with the maximum degree of economic freedom. We have already talked in detail about the fact that this is freedom of choice both for the seller and the buyer, and in relations with each other. For the buyer and seller, freedom consists in an unlimited choice of the terms of the trade transaction (for example, ...).

According to the degree of development of these and other economic freedoms, markets can be divided into three types:

1. free;

2. illegal;

3. adjustable.

The free market has a maximum of economic freedoms in their classical sense (as stated above).

But free markets for whom? and free from whom? Such a market is free for its subjects. They own the so-called economic sovereignty. So sellers themselves decide what to sell, to whom to sell the products and at what price. Buyers also have similar sovereignty. Because of this, economic relations in the classical market are built only horizontally. Partnership relations are formed between counterparties on the basis of a business agreement, contract (an agreement establishing rights and obligations for both parties for a certain period).



Such freedom turns out to have its ugly side. In our time, due to the willfulness of market participants and their failure to comply with the rules of the game, this type of market has received the unflattering names of “wild”, flea market, and uncivilized.

The second type of market – illegal – is close in the nature of the behavior of its subjects to the first type. The illegal market includes its variety - shadow trade. It is carried out in violation of laws and rules for the purchase and sale of ordinary goods (in the absence of the necessary patents and licenses, in case of non-payment of fees and taxes). The black market is also illegal. It is used for clandestine trade in goods that are prohibited by law from being sold (for example, drugs, weapons, pornography).

The first and second types of market relations have a defining feature - spontaneity, unpredictability of development and uncontrollability. These qualities are not accidental. They express the features of classical capitalism in the market sphere:

Many independent commodity producers who independently decide what to produce, to whom and how to sell it;

Many independent consumers who independently decide from whom to buy products;

Equivalent exchange in value;

Free, unregulated, spontaneous pricing under the influence of supply and demand;

Spontaneous regulation of reproductive proportions;

Free competition, free flow of capital.

Such a market is free from government intervention and strict legal regulation.

The third type of market is regulated, subject to a certain order, which is enshrined in legal norms and supported by the state. The transition to this type of market in the 20th century was due to objective reasons. First of all, an important role was played by the sharply increased level of concentration and centralization of production and the expansion of the scale of socialization of the economy. Large enterprises can no longer, as before, blindly work on an unknown market that is subject to spontaneous changes. In order not to risk huge capital expenditures, large firms strive to secure sales markets for themselves in advance and are willing to fulfill government orders that are profitable for them. It is noteworthy that, for example, up to 60% of cars and 100% of machine tools are sold according to orders from companies and the state.

By the second half of the 20th century, market relations have become significantly more complicated. If in the past the manufacturer of a product often sold it directly to the consumer himself, now on their way - a large army of intermediaries. They provide various types of trade services, both sales and after-sales services. All this led to the strengthening of the social nature of market relations and turned a regulated market into a social institution.

Fourth question: The market as a social institution. Market infrastructure.

A social institution is understood as a certain organization of social activity that regulates the rules of behavior of people and their relationships.

In the second half of the 20th century, the normal market was based on a set of certain institutions.

What is included in system of market institutions?

Firstly, a legal system that, in a market economy, performs two tasks:

1. organizes legal market regulation - establishes uniform rules of behavior for market entities;

2. protects market entities and punishes those responsible for violating legal norms, and thereby protects the economic interests of market agents.

Legal regulation of the market provides comprehensively developed legislation covering the entire system of market relations. It is based on the Civil Code. It serves as an economic constitution. It is obvious that the market as a social institution cannot exist without the preliminary and advanced development of legal legislation regulating the economic activities of people.

Secondly, The system under consideration includes government regulatory and control bodies: sanitary and epidemiological control institutions; tax system; state financial and credit policy bodies. This means that the modern market is developing not only horizontal relationships, but also organically includes qualitatively new vertical connections. They come from top to bottom - from the state to economic entities and, within certain limits, regulate their behavior.

Third, market institutions include associations, consumer unions, entrepreneurs and workers (trade unions). They increase the degree of organization, civility and efficiency of market agents.

Fourth, the set of institutions includes market infrastructure. It includes trading enterprises, commodity and stock exchanges, banks, and state budgetary institutions. Moreover, each type of market has its own infrastructure. Thus, in the goods market (consumer and industrial) there are specialized organizations: commodity exchanges, wholesale and retail trade enterprises, numerous companies engaged in intermediary service activities, etc.

Thus, the market as a social institution firmly unites the entire set of market relations into a single integrity.

So, each market has its own type of infrastructure:

fifth question: Advantages and disadvantages of a market economy (pros and cons of the market).

Market mechanism promotes efficient allocation society's limited resources. It is thanks to the action of the market that those goods and services that are necessary are produced in society, i.e. those products for which there is demand.

However, the market mechanism is not flawless. It has both its advantages and its disadvantages. Let's list the main ones.

Pros of the market.

1. In a market economy, goods and services are produced that buyers are willing and able to buy.

2. The market provides high efficiency production. As we said earlier, competition encourages manufacturers to strive to use the latest achievements in scientific and technical developments and introduce new technologies and equipment into production.

3. The market promotes efficient distribution resources. No one and nothing is holding back the flow of resources from less efficient areas of production to more efficient ones. This explains the market's ability to

3.1. rapid reorganization in production from one type of product to another;

3.2. as well as its ability to meet the diverse needs of people;

3.3. to an increase in the quality of goods and services.

4. The market mechanism provides freedom of choice for the actions of participants in market relations. Anyone has the right to buy shares, real estate, open a bank account, and start their own business.

Disadvantages of the market.

1. The market works well when there is competition. However, the market mechanism is not capable of independently solving problems associated with exceptional the position in the market of individual firms that have the opportunity not to worry about improving the quality of their products, and also to dictate their prices to customers.

2. Market activity can have an impact negative influence per condition irreplaceable resources(such as forests, wild animals, sea and ocean reserves, minerals) and the environmental situation in general.

The release of most goods and the creation of services is accompanied by environmental pollution environment. The fight against these negative consequences of production activities disadvantageous for producers because associated with additional costs.

3. The market does not ensure the production of goods and shared services(public transport, roads, bridges, parks). For the most part, this is not beneficial for private producers, because associated with significant costs that are not recouped at the market price. For example, many of us would refuse to pay a high price for entry into a park or for the right to drive our personal car on a road. It is difficult to imagine how a private company would charge passers-by for illuminating city streets.

4. The market does not create conditions for the development of fundamental science, the general education system, and cultural institutions.

5. The market does not guarantee the right to work, income, and rest.

6. The market does not prevent the emergence of social injustice and the stratification of society into rich and poor.

The shortcomings of a market economy can be compensated for by government intervention in the market mechanism.

So, by definition, a market is an organized structure in which there are producers and consumers, sellers and buyers, where, as a result of the interaction of consumer demand (demand is the quantity of a good that consumers can buy at a certain price) and the supply of producers (supply is the quantity of a good , which producers sell at a certain price), both product prices and sales volumes are established. There are many types of markets, the main ones of which can be grouped according to the following four characteristics.

It is advisable to recognize the division of markets based on “factors of production” as the initial market criterion.

Each of the markets, in turn, can be divided into its constituent elements. Thus, the market for means of production includes the market for land, machine tools, feed, gas, etc.; information market - markets for scientific and technical developments, know-how, patents, etc.; financial market - markets for securities, bank loans and other credit resources.

When considering the structural organization of the market, the number of producers (sellers) and the number of consumers (buyers) participating in the process of exchanging the general equivalent of value (money) for any product is of decisive importance. This number of producers and consumers, the nature and structure of relations between them determine the interaction of supply and demand.

In microeconomic theory, the following 4 types of market structures are studied: perfect (pure) competition; monopoly; monopolistic competition; oligopoly.

In the theory of market structure, the following main factors determining market structure are studied: the number of firms in the industry and their size; number of buyers; type of products produced by firms (same type (standard) or differentiated); the opportunity for other firms to enter and exit the industry; type of competition (price or non-price); awareness of sellers and buyers regarding changes in supply and demand factors.

The key concept that expresses the essence of market relations is the concept of competition (Latin concurrere - collide, compete).

Competition - according to A. Smith - is a behavioral category when individual sellers and buyers compete in the market for more profitable sales and purchases, respectively. Competition is the “invisible hand” of the market, which coordinates the activities of its participants.

Competition is rivalry between participants in a market economy for the best conditions for the production, purchase and sale of goods. Such a clash is inevitable and is generated by objective conditions: the complete economic isolation of each market entity, its complete dependence on the economic situation and confrontation with other contenders for the greatest income. The struggle for economic survival and prosperity is the law of the market.

Perfect competition is a market where many firms sell exactly the same goods, and no one firm has a large enough market share to influence the market price of the product.

The market structure of perfect competition is determined by 6 main characteristics:

  • 1) Many firms and their small size in the industry (firms are “price takers”).
  • 2) Lots of buyers.
  • 3) Same type (standardized) products.
  • 4) Easy conditions for other firms to enter and exit the industry.
  • 5) Lack of price competition between sellers.
  • 6) Full awareness of all market participants regarding changes in prices and properties of goods.

The demand curve for a competitive firm's product is a horizontal line.

because In conditions of perfect competition, there are many firms, each of which produces only a small volume of output and therefore each of them individually cannot influence the setting of prices on the market. In other words, a firm under perfect competition is a “price taker.”

So, a firm in conditions of perfect competition: is not able to influence the market price; takes the market price as given; faces a perfectly elastic demand for its products.

The firm's average revenue (AR) and its marginal revenue (MR) are equal to the market price of the product, and the average and marginal revenue schedules coincide with the demand schedule. Total revenue (TR) increases as sales volume increases (Figure 2.2).

There are two approaches to maximizing profits. The first is based on a comparison of average and maximum values ​​(Fig. 2.2). Under conditions of perfect competition, a firm maximizes its profits or minimizes losses by choosing the volume of production at which marginal revenue equals marginal costs (MR = MC), provided that price (P) exceeds the minimum value of average variable costs (P > AVC).

  • 1) If Q > Q*, then MC > MR and it is unprofitable to increase output.
  • 2) If Q
  • 3) At point e, MC - MR = P or MC - P.

The second approach is that the firm compares the gross revenue (TR) it receives at various levels of output with gross costs (TC). The company will choose the option when the difference between TR and TC is maximum, i.e. when the maximum amount of profit is reached.

Before F1 and after F2 TC > TR - production is unprofitable and impractical.

But even this seemingly ideal model has flaws. Economists recognize four possible factors inhibiting allocative efficiency in a competitive economy:

  • 1) there is no reason why a competitive market system will lead to an optimal distribution of income;
  • 2) in allocating resources, the competitive model does not allow for spillover costs and benefits or the production of public goods;
  • 3) a purely competitive industry may hinder the use of the best known production technology and favor a slow pace of technological progress;
  • 4) the competitive system does not provide either a wide range of product choices or conditions for the development of new products.

Strictly speaking, perfect competition in its pure form has never existed anywhere. It can be considered as a kind of scientific abstraction, the analysis of which is nevertheless necessary to understand the principles of the functioning of the market mechanism.

Depending on the degree of restriction of competition, there are several types of imperfect markets: monopoly, oligopoly and monopolistic competition.

Monopoly is the exclusive right of production, trade and other activities owned by one person, a certain group of persons or the state. Market power is the ability of a firm (seller) or buyer to influence the price of a product. A monopoly has complete market power. A pure monopoly is a type of market structure when a firm is the only producer of a product that has no analogues. Pure monopoly is an extreme form of market structure, the opposite of perfect competition.

Characteristic features of a pure monopoly: the concepts of “firm” and “industry” coincide; buyers have no choice; a pure monopolist, controlling the entire volume of output of goods, is able to control the price and change it in any direction; the demand curve for the monopolist's products has a classic form and coincides with the market demand curve; a pure monopoly is protected from competition by high barriers to entry.

Types of monopolies:

  • 1) A closed monopoly is long-term in nature, because it is protected by legal restrictions (issue of money, weapons).
  • 2) An open monopoly is temporary in nature, because is associated with exclusive rights that secure the ownership of a unique product.
  • 3) Natural monopoly is long-term in nature, because the minimum level of average total costs can be achieved with very large production volumes (electricity, railways, etc.).

The social costs of monopoly power are the losses or losses to society as a whole from monopoly power. Marginal cost is the cost of producing an additional unit of output. Lerner's indicator of monopoly power is L = (P - MC)/P, which shows the degree to which the price of a product exceeds the marginal cost of its production. 0< L < 1, чем больше L, тем больше монопольная власть фирмы.

The Herfindahl-Hirschman index determines the degree of market concentration:

N = P* + P* +… + P*,

where N is the concentration indicator, Рп is the firm’s percentage share in the market or its share in the industry supply.

Price discrimination is a difference in prices for a product of the same quality for different buyers, not related to the costs of its production. Price discrimination of the first degree (perfect price discrimination) - the presence of a special price for each buyer. Price discrimination of the second degree (based on sales volume) - setting a price depending on the volume of purchase. Third-degree price discrimination (segmented price discrimination) is the assignment of different prices to different groups of buyers.

The monopolist's marginal revenue curve lies below the demand curve. To increase sales volume, the monopolist reduces the price for each additional unit of production. The demand curve for a product of a pure monopoly is downward sloping, so the firm can influence price by controlling output. The ability to influence the price of a product is called monopoly power. In the case of a simple monopoly, the marginal revenue (MR) received from the sale of an additional unit of a good is lower than its price (except for the first unit) - MR< Р. График MR проходит ниже кривой спроса (рис. 2.3). Существует взаимосвязь эластичности спроса по цене, общего дохода (TR) и предельного дохода монополии (MR). Когда спрос эластичен, значение MR положительно и общий доход растет. Когда спрос не эластичен, MR < 0 и TR падает. Наконец, когда спрос единичной эластичности, MR = 0, a TR - максимальный, монополист, очевидно, ограничит объем выпуска эластичной частью кривой спроса.

Monopolistic competition (Fig. 2.4) is a type of market structure where firms selling differentiated goods with market power compete for sales volume, while none of them has full power to control the market price. Market power is the ability of a producer (or consumer) to influence the market price of economic goods.

Monopolistic competition is similar to the situation of “pure monopoly” and at the same time to “perfect competition”. The American economist Edward Chamberlin, in his book “The Theory of Monopolistic Competition” (1933), explained that real prices in the market tend neither to pure competition nor to pure monopoly, but tend to an intermediate position, determined in each individual case in accordance with the relative strength of both factors.

Features of the monopolistic competition market:

  • 1) Product differentiation; substitution of goods is high, but not absolute; brand loyalty; firms have limited market power.
  • 2) A large number of sellers; a small share of the company in the market supply; The company incurs certain costs of attracting customers.
  • 3) Relatively free entry into and exit from the market; entry costs are higher than under perfect competition; absence of industry barriers.
  • 4) Autonomous behavior of firms leads to the absence of collusion; freedom of decision making; lack of strategic behavior.
  • 5) Declining demand curve.

The level of production of a good by a monopolistically competitive firm is less than the level of production by firms that are not monopoly competitors but operate at an efficient scale of production.

The efficient scale of production is the volume of output that minimizes ATC. Since the firm could increase Q and decrease ATC, it is said to have excess capacity (AQ). AQ = efficient production scale - Q* (actual output).

The presence of excess capacity indicates that buyers do not consume the maximum possible quantity of goods and not at the lowest price (P* > MC), this means that monopolistic competition is a less effective market structure than perfect competition, because P* > MC, then some consumers refrain from purchasing the product, thus causing irreversible social losses from monopoly pricing.

In the short run, each firm in a monopolistic competition market is in many ways similar to a pure monopoly (Figure 2.6). It first chooses a quantity of output based on MC = MR, and then uses the demand curve to set the price corresponding to that quantity (P*). Whether the company will make a profit or incur a loss depends on the relationship between price and ATS. However, under monopolistic competition, economic profits and losses cannot last long.

Sources of profit for a company under monopolistic competition: bringing a unique product to the market; favorable location of the company; marketing barriers; application of advanced technology. In the long run, profits attract competitors into the industry, while losses encourage exit. The process of migration of firms continues until economic profit reaches zero.

Graphically, long-term equilibrium looks like this (Fig. 2.4). Point A is the long-term equilibrium point. Curve D is tangent to LAC. Firms earn only normal profits.

Characteristics of market equilibrium of monopolistic competition in the long run:

  • 1) Prices are above minimum long-term average costs, which leads to excess production capacity.
  • 2) Prices are higher than the marginal cost of production, because firms exercise market power. All this leads to a loss of efficiency associated with losses, firstly, due to underutilization of capacity; secondly, due to the appropriation by firms of part of the consumer surplus. However, the loss of efficiency is compensated by the expansion of the range of goods.

A modern market economy is an economy of predominant markets of monopolistic competition, because perfectly competitive markets, as well as completely monopolized markets, do not exist in their pure form.

Oligopoly is a market structure in which the majority of sales are made by a few large firms, each of which is able to influence the market price. An oligopolistic market has features of both competitive and monopolistic markets, depending on the behavior of its participants and the characteristics of the product being produced. An oligopoly market is a market for the interaction of a small number of interdependent large producers (sellers). As a rule, the oligopoly producer accounts for a significant part of the market supply, which allows it to influence the market price. Characteristic features of oligopoly:

The market is dominated by a small number of firms. The main feature of an oligopoly market is the close and conscious relationship and interdependence of firms on each other.

Consequences of the universal interconnection of oligopolists: demand cannot be accurately assessed; MR cannot be accurately determined; it is impossible to determine P* (equilibrium price) and Q* (equilibrium sales volume).

The Broken Demand Curve model (Figure 2.5) explains price inflexibility. The shape of the oligopolist's demand curve depends on the reaction of rivals to the firm's actions. Demand for a firm's product will be elastic if it raises its price because competitors will not raise their prices in response (D2). If the firm lowers its prices, then demand will become inelastic, since competitors will most likely also lower their prices (D1). The result is a broken demand curve for the firm (D2PD1). P - set price. If the firm increases the price, then demand will move to D2. If the firm lowers its price, demand will not change.

The MR curve has a vertical break A-B. Due to the gap in MR values, the volume of output will not affect the price of the product when marginal cost (MC) changes.

Pricing in an oligopoly market:

1) Cartel agreement.

Collusion is a form of oligopolistic behavior leading to the formation of cartels. A cartel is a group of firms that coordinate decisions regarding output volumes and prices as if they were a single monopoly.

Establishing a single price increases the revenue of all cartel participants, but the increase in price is accompanied by a mandatory decrease in sales volume. Under this agreement, each firm, seeking to maximize its profits, often violates the agreement by reducing prices secretly from others. This breaks the cartel.

2) Price leadership (tacit collusion) is an agreement between oligopolists on prices for their products. The idea is that firms in an industry are guided by prices set by one leading company. As a rule, the leader is the company that is the largest within its industry. The behavior strategy of the leading firm is a guide to action for other, smaller firms.

Leader's tactics when adjusting prices: price adjustments are rare and are carried out in case of significant changes in costs; impending price revisions are often reported through the media; the price leader does not necessarily choose the maximum price.

  • 3) Practice of price containment. It is the practice of charging the lowest price which discourages other firms from entering the market. In this case, firms temporarily give up current profits in order to prevent a competitor from entering the industry. The mechanism of this practice is that firms estimate the possible minimum average costs of a potential competitor and set a price below this level.
  • 4) Cost-plus pricing means that when determining the price, the oligopolist first estimates its average level of costs at a certain planned level of production, and then adds a “cape” to them in the amount of a certain percentage of profit. The cap should be sufficient to cover costs and ensure a normal profit.

Every day people carry out many transactions, turning money into products. The resulting product is the result of exchange. A person acquires a good in as much quantity as he wishes for a certain fee, which is established on a contractual basis. This form of exchange is called a market.

In contact with

What is a market

This is a system of relationships connecting the supplier and consumer of these goods (services). The price is also formed there, which is monetary value product.

Types of markets operating in

Depending on the object of market relations, markets are:

  • resource (natural resources, labor, means of labor);
  • consumer (food, non-food products, consumer services);
  • financial (monetary relations, gold and foreign exchange reserves, insurance, contracts).

The classification by scale is as follows:

  • single, which are separate retail outlets;
  • local – a large number of individual outlets combined into one retail outlet;
  • regional – trading platforms that unite retail outlets of a certain locality;
  • national – unification of regional segments;
  • international – trading platforms of integrated entities;
  • world.

Classification depending on the volume of trade turnover:

  • wholesale;
  • retail;
  • state procurements.

According to the degree of freedom of the buyer and seller, they are distinguished:

  • monopoly (one manufacturing company);
  • monopolistic (one consumer);
  • oligopolistic (small number of manufacturing firms conducting their own collusion activities);
  • oligopolistic (a limited number of buyers conducting their activities on the basis of secret collusion);
  • model of perfect competition (an ideal type of competitive market where there are a large number of consumers and resellers, independent of each other).

Signs of the market

The main feature of a market economy is freedom of trade, that is:

  • the manufacturer himself decides how much of the product to produce;
  • the buyer determines for himself what quantity to consume;
  • the price is formed based on the laws of supply and demand.

Important! In his work “An Inquiry into the Nature and Causes of the Wealth of Nations,” Adam Smith introduces the concept of the “invisible hand.” In fact, the “hand” is a market mechanism that coordinates the decisions of producers and buyers. The seller, wanting to maximize his own profit, is forced to satisfy the preferences of buyers.

Market laws

Just like other mechanisms, market operates according to its own rules.

It is characterized by: the law of demand, the law, the law of equilibrium price, the law of competition.

Law of Demand

When the cost of a good increases without changing other conditions, the demand for the product falls.

In addition to price factors that influence buyer interest, there are also non-price factors, which include:

  • increase or decrease in income of the population;
  • increase or decrease in prices for other goods;
  • changes in population structure;
  • changing consumer preferences.

Law of supply

The higher the cost, the higher quantity of product offered taking into account that other conditions remain unchanged.

Non-price factors influencing the quantity of supply include:

  • increase or decrease in production costs;
  • the emergence of competitors producing substitutes;
  • natural disasters, changes in the political situation in the country, etc.

Law of equilibrium price

When a balance is reached between supply and demand, an equilibrium price is established that can satisfy both the consumer and the buyer.

Important! The laws of the market do not apply in a planned economy, and achieving an equilibrium price is impossible. When implementing the plan, the personal preferences of consumers are not taken into account, and a deficit or surplus of various goods appears.


Law of Competition

An increase in producers of the same product leads to a revision of costs, an increase in labor productivity, diversification of production, improvement in the quality of products, reduction in costs, acceleration of the pace of scientific and technical progress, an increase in GDP, and structural changes in the economy.

Taking into account all the above positive aspects of competition, the desire of society is explained achieve perfect competition and the desire of monopolists to prevent this process.

Briefly about the functions

The market mechanism is designed to answer three main questions: What to produce? How to produce? For whom to produce? To do this, a number of functions are performed, which are presented in the table.

Functions of the market in economics

Market system

This system itself represents a unified system of segments for various purposes.

It consists of the following components:

  • consumer goods, services;
  • labor force (receipt of work and permanent income by the population);
  • securities, currency (transactions on the stock exchange);
  • intellectual property, achievements of scientific and technological progress;
  • means of labor;
  • spiritual goods (books, newspapers, magazines, exhibitions, cinemas, tourist trips).

What is this, a market for goods and services?

Otherwise known as consumer, it is an organized structure, where demand from government and households and supply from small, medium and global businesses meet.

Its importance is great since it makes up a large part of the GNP. In addition, its functions include:

  • creation, as well as satisfaction of public goods;
  • ensuring the profitability of entrepreneurs.

Structurally it looks like this:

  • government procurement;
  • means of production;
  • consumer goods and services.

State procurements

Government orders to meet the needs of a municipal as well as state nature, for which funds are allocated funds from the state budget. Characterized by large volumes and strategic purpose.

Means of production

The subjects of this type of relationship are small and large industrial enterprises engaged in the sale, purchase, and exchange of industrial objects.

Consumer goods and services

Public goods. For this type of goods, enter concept of elasticity, which allows you to assess the degree of need for a good.

Attention! The elasticity of a product shows the degree to which demand or supply changes depending on price. Let's take sugar as an example. Regardless of the price, it will be bought in the same volumes. We can say that this type of product is inelastic, because a change in price will not lead to a change in its consumption.

Manufacturers market

This is a type of relationship where industrial goods are offered. In the conditions of this trading platform, producers of goods are created in order to satisfy another manufacturer's need through sale, exchange, leasing of equipment.

The main differences of this variety:

  • fewer buyers who purchase in much larger volumes;
  • in the producer market, demand does not change much as a result of changes in cost;
  • geographic concentration of buyers;
  • characterized by the consumption of a large mass of manufactured products.

Single product trading platform

A miniature representation of the movement of goods and their sales. When determining such a trading platform, they talk about the places where the demand for this type of product is highest, about its main competitors, about the methods and methods of sales, about the share in the overall structure of product distribution.

The essence of the market and its importance in economics

First of all, free market relations reimburse the manufacturer's costs, maximize profits.

He also satisfies the buyer’s needs based on personal capabilities. Thanks to competition, the means of labor are developed and improved.

Based on the laws of supply and demand, the quantity of goods and their value are formed.

However, despite all the positive aspects, there are also negative ones.

With the transition to market relations, such a concept as the “shadow economy” appears. Since tough competition automatically eliminates weak players, they begin to look for illegal ways to maximize their income.

The most prominent representatives of the shadow economy are homeworkers. Of course, there are homeworkers registered as legal entities who regularly pay taxes and openly provide data about their activities. However, a considerable part does not comply with these conditions. The shadow economy is bad because its activities are not included in the taxable one. Tax leakage from the budget is always leads to its deficiency.

What is the market and the market mechanism in economics

Market economy, signs and mechanisms

Conclusion

The market system of relationships is not ideal. However, based on its capabilities, it is in many ways better than a planned economy.

A certain set of relations in the economic sphere, characterized by the intermediation of monetary values ​​during sales and purchases by the market. This rather complex and branched structure allows manufacturers to sell their products in maximum accordance with existing consumer demand. Its influence covers all spheres of modern economic relations.

The main features of the market are the presence of elements that are directly related to ensuring production, as well as the presence of components of monetary and material circulation. This economic structure is significantly influenced by various economic practices, as well as specific features present in the sphere of circulation of finished products, the level of privatization of enterprises, etc.

The market has certain connections with the spiritual and also with the sale of products of intellectual activity of writers, scientists, artists, etc. All this variety of relationships determines its complex structure. It, in turn, includes various types of markets, as well as its different types. Scientists identify more than ten criteria that are key to characterizing this complex structure. Types of markets and their classification include many groups. They are divided according to spatial location and economic relationships:

1. By geographical location:

Local (local);

Regional;

National;

Worldwide.

2. According to the purpose of the objects, the market is divided into:

Consumer;

Valuable papers;

Work force;

Foreign exchange;

Informational;

Scientific and technical.

3. By product groups:

Markets for industrial products;

Consumer goods markets;

Markets for materials and raw materials.

4. For subjects of market relations:

Buyer's market;

Sellers' Market;

Public sector institutions;

Intermediary.

5. Based on the presence of competitors, types of markets are divided into:

Monopoly;

Oligopoly;

Monopolistic competition;

Perfect competition.

6. Based on signs of saturation, they are grouped into:

Equilibrium;

Scarce;

Redundant.

7. According to the nature of the maturity of the relationship, it can be:

Undeveloped;

Developed;

Emerging.

8. In relation to the current legislation, types of markets are grouped into:

Official;

Shadow.

9. According to types of implementation, they are divided into:

Retail;

Wholesale.

10. According to the assortment characteristics of the goods sold, the following types of markets are distinguished:

Closed (offering customers products released by the first manufacturer);

Saturated (selling goods produced by various enterprises);

A wide assortment list (offering a number of specific products, the use of which satisfies interconnected needs);

Mixed (selling a wide variety of goods).

11. By industry type there are:

Oil market;

Automotive;

Computer market, etc.

Financial market (investment, credit, currency and securities market);

Market of intellectual goods (innovations, inventions, information services, as well as literary and artistic works);

Labor market (labor resources).

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