Реферат: Market and its Functioning

Market and its Functioning

Market is an instrument or mechanismwhich is function on the definite space where customers and sellers withdifferent goods and services are cooperating to each other. Markets are differing from each other withthe specific of goods and also services but with the freedom of choice forcustomer.

The main point in consideration offunctions of the market is coming to the exposure of regularity of formingprises for goods and services under the influence of supply and demand.


Demand is forming by the customer which determines the structure andamount of bought products with definite prise in the definite period of time. Thatmeans the demand is forming from many factors.

One of characteristics of demand is an interrelationship between priseand amount of demand. When the prise goes up, as a rule, the demand goes downand vice versa when the prise goes down demand goes up. This interrelation isformed as a law of demand. This law is formed with next factors: the firstfactor: for the customer prise is some sort of barrier which doesn’t lethim to by the good he planned. Low prise for good is stimulating to buy it andhigh prise restrains from buying. The second factor: there is an effect of theincome and of its real use. The high prise for one of the goods can becompensated with the purchase of other good with lower prise which is ablesuitable replace the first good. The effect of income is showing that when theprise is lower the costumer is able to buy more of given good and not rejectinghimself from buying some of alternative goods.  

Beside the prise there are other factors which influence on theaverage amount of demand. These factors are: preferences of costumer, changingof amount of costumers, the change of income, and change of prise of providegoods (Makarkin, 2006).

The law of demand has it practical meaning for sellers andcustomers in case if its influence has a quantitative meaning as soon as itinfluence on the exchange of productivity and on the amount of possibleexpenses of costumers. The law of demand has its reflection in the law ofsupply.


Law of Supply

It is obvious that that there is the straight dependence betweenthe prise of good and the amount of good on the market. Rising of prise isstimulating the producer to rise the amount of good on the market. Thisinterrelation between the prise and the amount of production is called the lawof supply. The interest of producer in increasing the amount of produced good can beeasily can be explained the singe number of good is leading to definiteamount of income from selling of this good.

The supply in big quantity is caused by next factors: changein prise for resources which are includes in production of good, change intechnologies which causes the rise of productivity, change in taxes, change inexpectations (reducing of prises in future which makes the producers who risethe productivity in that time), and the change of number of suppliers.

The change in supply might be caused by other reasons as well: theeconomy factors, amount of employees ext. (Verian, 1997).


Elasticity of supply and demand

The degree of sensitivity or reaction of consumer or producer onthe change of prise of goods and services is actually the elasticity of supplyand demand. In case if consumer is reacting on change of prise that the demandis elastic but in case if consumer is not reacting that the demand is notelastic. The index of elasticity is also applied in relation of the amount ofproduced products.

In everyday practice life of market there is a situation whenshortage or surplus of goods which is influence on prices.

Firs case: supply of goods in exceeds the demand. This exceedmight be caused by surplus of production of goods or by unfounded high prices.This situation also might be caused in case if population has low income.

Second case: the demand exceeds the supply. This case is showingthat the market has the deficit of those or other goods. This situation makes consumers to look for the provided goods. Market isreacting on deficit by rising prices for goods. The solutions of this situationmight be: decreasing of the income of population, or by raising the amount ofproducts which are demanded.

Third case: equality of supply and demand. This case might happenafter some period of time. This exact time shows that the price is optimal. Theoptimal price is coming in case of free competition and theoretically deniescorrespondence of price for the good to amount of needed expenses. Suchequality shows us the stability of production and the market which makes thebest affectivity of market economy (Matveeva, 2007).

Models of market and its impact on productivity

Market relationships are influencing on productivity byinterrelation of supply and demand. However this influence is not limited onlywith role of price and pricing. The huge impact on production, distribution,material exchange, ext make model of market. There are four models of market: 1perfect competition, 2 monopolies, 3 monopolistic competition, 4 oligopoly. Onthe base of different models of market in population the freedom of business isforming the tendency of forming expenditures of labour for production of goodsand services. (Dolan, 1996)

Kinds of market competition

Perfect competition characterized by big amount of independentfirms which produce standard products. In perfect competition of firms productscan be moved from one branch of industry to another. That means that firms canmove from production of one good to another (Chekanski, 2008).

The monopolies. The monopolist is the company which the only oneproducer of some good and which doesn’t have any replaceable alternative ofthis good. Monopolies are trying to get maximum profit from every singleproduct. Taking a unique place on market monopolies has the possibility to sethigher prices. On the other hand there are some barriers which monopolies haveto take in a count. First of all the rise of prices is not always leads toelasticity of demand. Secondly, by the law which is existing in countries withmarket economy setting the few prices for the same good is price discrimination(Chekanski, 2008).

The competition which is going between different kinds of marketshas its positives and negatives. It is an important element in mechanism of selfregulation. Market is an indicator of population needs and common weal. On theother had market is signalling about future potential possibilities ofproductions which would form common finance weal.

On the perfect competition market the law of cost takes place.With its influence one producers are able to compete with other producers andalso successfully progressing on the other hand others are bankrupting orliving the market.

Methods of regulation of market

On this level of evolution of market it plays the very importantrole. Market is providing the balanced pay ability of supply and demand. Themarket itself is a place with help of with the exchange of products andservices if going. So when we are speaking about market regulation themain goal is to define methods with help of which we can effectively influencethe sphere where the main economic relation of producer and consumer takeplace. The regulation of market is going with direct and indirect methods ofinfluence on the amount and structure of sale. The important way of influenceon amount and structure of demand is centralization which is provided bygovernments’ politic of population income. Government has the direct impact topopulations’ income. All these factors have impact on the amount of solvencydemand of population.

As an indirect method of market regulation there is governmentregulation of prices, taxes systems and also custom-house politics which isfocused on protection of interests of producers (Makarkin, 2006).



1.  Dolan, E. (1996) Microeconomics. Translated from English at1996. Press.

2.  Chekanski, A. (2008) Microeconomics for students. INFRA-M

3.  Makarkin, N. (2006) Microeconomics for high schools.Academic Project

4.  Matveeva, T. (2007) Introduction to Microeconomics. 5thedition GU VSHE

5.  Verian, H. (1997) Microeconomics, Current View. Unity

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