posted on 06-06-2019


Updated October 1, 2019

What is a Market?

A market is a location where buyers and sellers meet to exchange goods and services at prices determined by the forces of supply and demand.

How Does a Market Work?

A market may be a physical location or a virtual one over a network (for example, the internet). Here, people who have a specific good or service (the supply) they want to sell interact with people who wish to buy it (the demand).

Prices in a market are determined by changes in supply and demand. If market demand is steady, an increase in market supply results in a decline in market prices and vice versa. If market supply is steady, a rise in demand results in a rise in market prices and vice versa. These relationships are demonstrated in the following graphs:

Producers advertise goods and services to consumers in a market in order to generate demand. Also, the term "market" is closely associated with financial assets and securities prices (for example, the stock market or the bond market).

Why Does a Market Matter?

A market facilitates transactions between buyers and sellers (financial markets) and producers and consumers (consumer goods and services market). Markets experience fluctuations and price shifts resulting from changes in supply and demand. These changes result from fluctuations in many variables including, but not limited to, consumer preferences and perceptions, the availability of materials, and external sociopolitical events (for example, wars, government spending, and unemployment).