Edition 2016

CONCEPT OF MARKET AND MAJOR MARKETS IN AN ECONOMY 2.1

Market

The word ‘market’ does not refer only a particular market place in which things are
bought and sold but the whole of any region in which buyers and sellers are in such
free intercourse with one another that the price of the same goods tends to equality
easily and quickly.

A market is any one of a variety of systems, institutions, procedures, social relations

and infrastructures whereby parties engage in exchange. While parties may exchange
goods and services by barter, most markets rely on buyers offer their goods or services
(including labor) in exchange for money from buyers.

Major market in an economy:

The followings are major macroeconomic market in an economy

Commodity market:
Modern commodity markets began with the trading of agricultural products, such as
corn, cattle, wheat and pigs in the 19th century. In commodity market, standardized,
graded products are bought and sold by the organized traders'.

Labor market:
Labor market is a market where workers find paying work, employers find willing
workers, and where wage rates are determined. Labor markets may be local or
national (even international) in their scope and are made up of smaller, interacting
labor markets for different qualifications, skills, and geographical locations. They
depend on exchange of information between employers and job seekers about wage
rates, conditions of employment, level of competition, and job location. So labor
market brings together employers and people who are looking for employment.

Money market:
Money market refers to a set of institutions, conventions, and practices whose aim is to
facilitate the lending and borrowing of money on a short-term basis. The money
market is, therefore, different from the capital market, which is concerned with
medium- and long-term credit. The transactions that occur on the money market
involve not only banknotes but assets that can be turned into cash at short notice, such
as short-term government securities and bills of exchange.

Bond market:
The market in which bonds are traded before their maturity is known as bond market.
If interest rates decline after a bond has been issued, the value of bonds already issued
with higher rates of interest will rise, and hence the bond market is said to be “up.” A
rise in interest rates will lower the value of bonds issued with lower rates of interest
and send the bond market “down.”

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Edition 2016
CONCEPT OF MARKET AND MAJOR MARKETS IN AN ECONOMY 2.1

Foreign exchange market:

The foreign exchange market (currency, forex, or FX) trades currencies. It lets banks
and other institutions easily buy and sell currencies.

The purpose of the foreign exchange market is to help international trade and
investment. A foreign exchange market helps businesses convert one currency to
another. For example, it permits a U.S. business to import European goods and pay
Euros, even though the business's income is in U.S. dollars.

In a typical foreign exchange transaction a party purchases a quantity of one currency

by paying a quantity of another currency.

Circular flow of economic activities

To grab the concept of market in the context of economics a model, named circular
flow of economic activities, can be taken into consideration. The relationship between
output and resource markets can be described by this circular flow diagram. This
diagram illustrates the very important interdependence between output and resource
markets. Firms purchase resources in resource markets so that they can produce the
output that is sold in the output markets. Because of this, we say that the demand for
resources is a derived demand that is derived from the demand for final output. The
demand for autoworkers, for example, increases when the demand for automobiles
rises.

Payments of Goods & Services

Revenue
Expenditure

Goods & Services

Product /output
Market
Households Factor Firms
Market
Cost

(land, labor, capital, entrepreneurship)

Earnings

Resource Services

Payments of Resource Services

(rent, wage, interest, profit)

Figure: Circular flow of economic activities

The circular flow diagram above also illustrates another point that should be
remembered: households are the source of supply in the resource market and firms are
the source of demand. Note that these roles are the opposite of the roles played by
both households and firms in the output market.

This document is compiled from different books, write-up and internet sources, only to be use for
classroom purposes, not to be uploaded in anywhere or to be distributed page no2
Sayeed/PGDHRM/2016