“The Market Mechanism”
> Explanatory Article by Marios Kyriakou, MSc Economics
About the author: Marios Kyriakou has a bachelor’s degree in Economics from the University of Cyprus and a master’s degree in Economics from the University of Warwick. He is also a holder of CySEC’s Advanced Certificate in Financial Services Legal Framework and a professional in Online Trading, Forex and CFDs with more than 7 years of experience.
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<Last updated 13.04.2020>
Hi! If you are interested in Economics, I’ve prepared the below to help you understand what is a market. You should take a look at this short article in which I explain one of the most important systems in economics, the Market Mechanism.
The market can be a physical place, just like many years ago, when the internet did not exist, but nowadays we refer to the market as a mechanism. A mechanism, system through which buyers and sellers communicate, exchange information and engage in transactions. For example, the Market for Goods and Services is the market were the buyers are the consumers and the sellers are the goods and services providers.
We have seen that consumers actually form the economic agent we call Household. People belonging to a household, who work as employees, receive income and with that amount they spend income for acquiring goods. The rest of their income goes to savings. The households Savings amount is transferred back to the providers by Lending to businesses and Investment Activities by businesses.
We have already discussed that, in the Market for Factors of Production, buyers are the providers/ businesses and sellers are the households. Businesses need resources which are owned owned by households, and through this market, they acquire the resources, the factors of production: land, buildings, employees, funds… needed for conducting business and produce/provide goods.
For the market mechanism to be effective, and thus helping people to satisfy their needs effectively, some important conditions must exist:
- Each individual participating and engaging in economic activities must pursue to maximize the benefit he, or she receives from economic activities. This means that the person must apply the economic principle.
- There must be the market form of free competition, nobody should be excluded from offering goods and services and no interventions must act against it. The more competitive the market environment the better for the economy.
- Right of Ownership must exist and be protected, people must have full freedom for employment, production and consumption. So it is important the way the framework is designed upon which the market operates.
“I hope I am clear on this one. If not, contact us on social media and we will do our best to help you.
Thank you for reading my articles and watching my videos.”