Understanding Market Operations and Players

Definition of Market

• A market is where economic agents come together to determine price and quantity.
• Two key decisions:
  • Price
  • Quantity

Key Players in the Market

• Buyers: Demand the goods.
  • Where the demand originates.
• Sellers: Supply the goods.

Assumptions in Market Analysis

• Standardized Products:
  • Products sold are often assumed to be standardized, such as farm goods (e.g., apples, oranges).
  • No specific mark from the seller—products should be roughly the same.
• Competitive Markets:
  • Assumed but not always true in reality.

Types of Markets

Perfectly Competitive Market

• Characterized by many buyers and sellers.
• Each participant has a small impact on market price and output.
• Individual decisions (e.g., buying an apple) do not change the market price.

Imperfect Market

• Either buyers or sellers can influence market prices.
• Monopoly: Single seller.
• Oligopoly: Few sellers, each influencing the price.
• Monopsony: Single buyer, influencing the price by being the sole purchaser.

Market Power

• The ability of a buyer or seller to change the price of a good or service in the market.
• Buyer's Market Power: Can drive prices down.
• Seller's Market Power: Can drive prices up, especially in monopolies.

Conclusion

• Market power affects pricing strategies and market dynamics, contrasting with purely competitive markets.