Market and its Functioning
Market and its Functioning
Market is an instrument
or mechanism which is function on the definite space where customers and
sellers with different goods and services are cooperating to each
other. Markets are differing from each other with the specific of goods and
also services but with the freedom of choice for customer.
The main point in
consideration of functions of the market is coming to the exposure of regularity
of forming prises for goods and services under the influence of supply and
demand.
Law of demand
Demand is forming by the customer
which determines the structure and amount of bought products with definite
prise in the definite period of time. That means the demand is forming from
many factors.
One of characteristics
of demand is an interrelationship between prise and amount of demand. When the
prise goes up, as a rule, the demand goes down and vice versa when the prise
goes down demand goes up. This interrelation is formed as a law of demand. This law is formed with next factors: the first factor: for the
customer prise is some sort of barrier which doesn’t let him to by the good he
planned. Low prise for good is stimulating to buy it and high prise restrains
from buying. The second factor: there is an effect of the income and of its
real use. The high prise for one of the goods can be compensated with the purchase
of other good with lower prise which is able suitable replace the first good.
The effect of income is showing that when the prise is lower the costumer is
able to buy more of given good and not rejecting himself from buying some of
alternative goods.
Beside the prise there
are other factors which influence on the average amount of demand. These
factors are: preferences of costumer, changing of amount of costumers, the
change of income, and change of prise of provide goods (Makarkin, 2006).
The law of demand has it
practical meaning for sellers and customers in case if its influence has a
quantitative meaning as soon as it influence on the exchange of productivity
and on the amount of possible expenses of costumers. The law of demand has its
reflection in the law of supply.
Law of Supply
It is obvious that that
there is the straight dependence between the prise of good and the amount of
good on the market. Rising of prise is stimulating the producer to rise the
amount of good on the market. This interrelation between the prise and the
amount of production is called the law of supply. The interest of producer in
increasing the amount of produced good can be easily can be
explained the singe number of good is leading to definite amount of income from
selling of this good.
The supply in big quantity is caused by next factors: change in prise for
resources which are includes in production of good, change in technologies
which causes the rise of productivity, change in taxes, change in expectations
(reducing of prises in future which makes the producers who rise the
productivity in that time), and the change of number of suppliers.
The change in supply
might be caused by other reasons as well: the economy factors, amount of
employees ext. (Verian, 1997).
Elasticity of
supply and demand
The degree of
sensitivity or reaction of consumer or producer on the change of prise of goods
and services is actually the elasticity of supply and demand. In case if
consumer is reacting on change of prise that the demand is elastic but in case
if consumer is not reacting that the demand is not elastic. The index of
elasticity is also applied in relation of the amount of produced products.
In everyday practice
life of market there is a situation when shortage or surplus of goods which is
influence on prices.
Firs case: supply of
goods in exceeds the demand. This exceed might be caused by surplus of
production of goods or by unfounded high prices. This situation also might be
caused in case if population has low income.
Second case: the demand
exceeds the supply. This case is showing that the market has the deficit of
those or other goods. This situation makes consumers to look for the provided goods. Market is reacting on deficit by rising prices for goods. The solutions of this situation might
be: decreasing of the income of population, or by raising the amount of
products which are demanded.
Third case: equality of
supply and demand. This case might happen after some period of time. This exact
time shows that the price is optimal. The optimal price is coming in case of
free competition and theoretically denies correspondence of price for the good
to amount of needed expenses. Such equality shows us the stability of
production and the market which makes the best affectivity of market economy (Matveeva, 2007).
Models of market
and its impact on productivity
Market relationships are
influencing on productivity by interrelation of supply and demand. However this
influence is not limited only with role of price and pricing. The huge impact
on production, distribution, material exchange, ext make model of market. There
are four models of market: 1 perfect competition, 2 monopolies, 3 monopolistic
competition, 4 oligopoly. On the base of different models of market in
population the freedom of business is forming the tendency of forming
expenditures of labour for production of goods and services. (Dolan, 1996)
Perfect competition
characterized by big amount of independent firms which produce standard products.
In perfect competition of firms products can be moved from one branch of
industry to another. That means that firms can move from production of one good
to another (Chekanski, 2008).
The monopolies. The
monopolist is the company which the only one producer of some good and which
doesn’t have any replaceable alternative of this good. Monopolies are trying to
get maximum profit from every single product. Taking a unique place on market
monopolies has the possibility to set higher prices. On the other hand there
are some barriers which monopolies have to take in a count. First of all the
rise of prices is not always leads to elasticity of demand. Secondly, by the
law which is existing in countries with market economy setting the few prices
for the same good is price discrimination (Chekanski, 2008).
The competition which is
going between different kinds of markets has its positives and negatives. It is an important element in mechanism of self regulation. Market
is an indicator of population needs and common weal. On the other had market is
signalling about future potential possibilities of productions which would form
common finance weal.
On the perfect
competition market the law of cost takes place. With its influence one
producers are able to compete with other producers and also successfully
progressing on the other hand others are bankrupting or living the market.
Methods of
regulation of market
On this level of
evolution of market it plays the very important role. Market is providing the
balanced pay ability of supply and demand. The market itself is a place with
help of with the exchange of products and services if going. So when we are speaking about market regulation the main goal
is to define methods with help of which we can effectively influence the sphere
where the main economic relation of producer and consumer take place. The
regulation of market is going with direct and indirect methods of influence on
the amount and structure of sale. The important way of influence on amount and
structure of demand is centralization which is provided by governments’ politic
of population income. Government has the direct impact to populations’ income.
All these factors have impact on the amount of solvency demand of population.
As an indirect method of
market regulation there is government regulation of prices, taxes systems and
also custom-house politics which is focused on protection of interests of
producers (Makarkin, 2006).
References
1. Dolan, E. (1996) Microeconomics. Translated from
English at 1996. Press.
2. Chekanski, A. (2008) Microeconomics for students.
INFRA-M
3. Makarkin, N. (2006) Microeconomics for high schools.
Academic Project
4. Matveeva, T. (2007) Introduction to Microeconomics.
5th edition GU VSHE
5. Verian, H. (1997) Microeconomics, Current View.
Unity