How Markets Work (Cambridge International IGCSE Economics)
Definition of a market
Spec point — Definition of a market
-
A market is any place or process that brings buyers and sellers together to exchange goods and services
- This exchange can happen in a physical location (such as a food market in Jakarta) or through a virtual platform (such as Alibaba or Amazon)
Jakarta food market
Exam Hint In economics, a market does not always refer to a building or shop – it includes any system where buyers and sellers can meet
Examples of markets
Spec point — Examples of markets
- A product market is one where buyers and sellers meet exchange a physical good
- A factor market is one where buyers and sellers meet to exchange factors of production
| Type of market | Description | Example |
|---|---|---|
| Physical retail market | - Buyers and sellers meet face-to-face | - A street market in Bangkok selling fruit and clothing |
| Online market | - Buyers and sellers interact via the internet | - Shopee – an e-commerce platform used widely in Southeast Asia |
| Commodity market | - Raw materials such as oil, gold or wheat are traded | - The Dubai Mercantile Exchange for crude oil |
| Labour market | - Workers offer labour, and employers demand it | - The tech recruitment market in Bengaluru, India |
| Foreign exchange market | - Currencies are bought and sold | - Forex trading platforms accessed by banks worldwide |
| Stock market | - Shares of companies are bought and sold | - The Tokyo Stock Exchange |
Roles of buyers and sellers
Spec point — The roles of buyers and sellers
-
In any market, both buyers and sellers play essential roles
- In an efficient market, sellers respond to what buyers want, and buyers choose between competing sellers
- This interaction helps determine prices and quantities
The buyer demands and the seller supplies
Buyers
-
Also known as consumers or demanders
-
Their choices and preferences determine demand for goods and services
-
They help to set prices by signalling how much they are willing to pay
- For example: A buyer in Mexico City searching for the best price on mobile phones influences how firms set prices to compete
Sellers
-
Also known as producers or suppliers
-
They aim to supply goods or services in order to make a profit
-
They decide what to produce, how much and at what price based on costs and expected demand
- For example: A coconut farmer in the Philippines choosing whether to sell to local markets or export to Singapore
Exam Hint When answering short questions on markets, be sure to explain both sides of a market. Buyers create demand. Sellers provide supply. The interaction between the two leads to price and output decisions
Was this revision note helpful?
Build on this topic