Introduction to Markets AS Economics

Introduction to Markets Market – any place or process that brings together buyers and sellers with a view to agreeing a price The basis of how an economy operates – through production and subsequent exchange

Markets and sectors The whole economy can be divided into different sectors. Primary sector – extraction industries like farming, fishing, mining Secondary sector – production industries like manufacturing, refining and building Tertiary sector – service industries like transport, education, healthcare, banking and retail

Classifying into a sector What sector(s) would you place the following? Tesco Farmer Football team Sausage factory Coal mine Home builders Teacher BP Southeastern trains

How competitive is a market? The competitiveness of a market depends on the number of buyers and sellers If there is only one seller then they can charge a higher price as there is no alternative e.g. letter delivery and Royal Mail If there is only one buyer then the buyer could effectively buy at a low cost and the supplier may not make much profit If there are lots of buyers and sellers then the market tends to be competitive

Markets and competition Markets provide a resolution for the basic economic problem by providing a means through which scarce resources are allocated. Markets usually allocate through a price system Products command a price and reflects how much suppliers are willing to sell at, and how much consumers are willing to pay The interaction of sellers and buyers therefore determines the price in any type of market situation

Why do prices change? As markets are competitive invariably means that prices fluctuate (change) If producers put more of their products onto the market OR consumers buy less then prices will fall. This can cause suppliers to leave the market. If producers put less of their product onto the market OR if consumers demand much more then the price will rise. This can cause more suppliers to enter the market.

Introduction to Markets The range of markets: Organised markets – commodities e.g. rubber, oil, sugar, wheat, gold, copper, etc. Financial markets – stocks, shares, currencies, financial instruments Goods markets – the supply and demand of goods and services in general, food, clothing, leisure, houses, cars, etc. Factor markets – the supply and demand of factors of production – land, labour and capital

Introduction to Markets A market does NOT have to be a physical place like a shop The market place consists of all those who have items/services for sale and all those who are interested in buying those items/services Many businesses have global markets because of the developments in technology – see

Introduction to Markets Demand – the amount consumers desire to purchase at various alternative prices Demand – reflects the degree of value consumers place on items – price and satisfaction gained from purchase (utility) Supply – the amount producers are willing to offer for sale at various prices Supply – reflects the cost of the resources used in production and the returns/profits required

Introduction to Markets Factors affecting the efficiency of markets – The amount of information about the markets held by consumers and producers – The ease with which factors of production can be put to alternative uses – The extent to which price is an accurate signal of the true utility and true cost in determining the level of demand and supply (externalities) – The degree to which firms hold monopoly power – The degree to which property rights are clearly defined – Whether the market can provide goods and services (public goods)

Markets and sub-markets A market can be subdivided into different submarkets Computing can be divided into PC & Mac Software can be divided into Word-processing, Spreadsheets etc Cars can be divided into luxury, family, sports and small

Subdividing the retail market Retail Food Fresh Food Frozen Food Ambient Food Non- food ClothingElectricalStationery

Subdividing the leisure market In a group, divide up the leisure market into different sub-markets

Scale of markets Markets can operate on different levels – Local – Regional – National – International – Global Give an example of an organisation which operates on each of these scales

Market links Demand for some products are affected when the price of another product rises or falls What would happen to demand for cream if the price of strawberries rises? These are known as complementary products. What would happen to demand for tea if the price of coffee doubles? These are known as substitute products.

Key words Market Primary Secondary Tertiary Buyers Sellers Sub-market