Essential to know
What is mean by market and how does it work ? What are the market participants ? What are the market movers ? These are some challenging questions that a learner face. For this reason understanding market forces become compulsion.
•Meaning and definition of market
“Market is a web of market participants — buyers and sellers. Here, the degree of participation determines the nature of market whether it is open or closed”.
•What are the types of markets
Logically, open market manifests more participation than closed market. It is because of regulatory compulsion of respective governments. Mainly, in the communist or socialistic nations, governments usually, dictate the terms of production.
In such markets, the choices of producers and consumers do not matter but the need of society determined by government. On the other hand, in free market, demand of market determines the supply of commodities.
Let’s understand the market forces
For better clarity, a detailed explanation of market forces is utmost important. Conventionally, governments, demand and supply of consumers and producers, and traders, speculators are identified as major market forces..
Is government a market forces ?
Usually, consumers and producers decide the directions of the quantity, as well as prices of commodities. Apart from these, in certain nations, governments play major role in determining prices, as well as flow of quantity. Largely, they do so by incentives or imposing taxes.
Obviously, incentives woo consumers at targeted commodities; whereas, taxes force them to think against other. Similarly, producers react to the incentives and taxes.
Functioning of demand and supply to move market
Naturally, in a market with lesser barriers and regulatory burden, the choices of consumers and producers determine the course of price action.
Whenever the price of a product rises, producers work hard to increase supply in line. Whereas, fall in pieces reduce the degree of supply of that commodity.
Likewise, whenever, supply of a product rises in the market, prices start going down. And, opposite happens when there is a scarcity.
How invisible hand functions in open markets ? Is it magic of demand and supply ?
Meantime, market experience a stage at which the prices of a particular commodity more or less remains in line with desired cost.
For that stage, economists call “market equilibrium” which is short lived phenomenon, and never last long. By other, this ability of market is identified as “invisible hand of market”.
Role of traders and speculators to move market forces
Thoughtfully, traders and speculators always play certain role in determining the flow of goods and prices. By the means of hoarding of certain commodity in the time of shortage, they can influence the prices to reap more profit.
In a general market, all these forces play important role in determining the prices of any commodity provided that the discussed factors are there. Surely, this will enrich your “understanding market forces”.