Markets

The concept of exchange leads to the concept of a market. A market is the set of
actual and potential buyers of a product. These buyers share a particular need or
want that can be satisfied through exchange. Thus, the size of a market depends
on the number of people who exhibit the need, have resources to engage in
exchange, and are willing to offer these resources in exchange for what they want.
Originally the term market stood for the place where buyers and sellers gathered
to exchange their goods, such as a village square. Economists use the term to
refer to a collection of buyers and sellers who transact in a particular product
class, as in the housing market or the grain market. Marketers, however, see the
sellers as constituting an industry and the buyers as constituting a market. The
relationship between the industry and the market is shown in Figure 1.2. The
sellers and the buyers are connected by four flows. The sellers send products,
services and communications to the market; in return, they receive money and
information. The inner loop shows an exchange of money for goods; the outer
loop shows an exchange of information.
Modern economics operate on the principle of division of labour, where each
person specializes in producing something, receives payment, and buys needed
things with this money. Thus, modern economies abound in markets. Producers
go to resource markets (raw material markets, labour markets, money markets),
buy resources, turn them into goods and services, and sell them to intermediaries,
who sell them to consumers. The consumers sell their labour, for which
they receive income to pay for the goods and services they buy. The government
is another market that plays several roles. It buys goods from resource, producer
and intermediary markets; it pays them; it taxes these markets (including
consumer markets); and it returns needed public services. Thus each nation's
economy and the whole world economy consist of complex interacting sets of
markets that are linked through exchange processes.
In advanced societies, markets need not be physical locations where buyers
and sellers interact. With modern communications and transportation, a merchant
can easily advertise a product on a late evening television programme, take orders
from thousands of customers over the phone, and mail the goods to the buyers on
the following day without having had any physical contact with them.
Businesspeople use the term markets to cover various groupings of
customers. They talk about need markets (such as health seekers); product
markets (such as teens or the baby boomers); and geographic markets (such as
western Europe or the United States). Or they extend the concept to cover noncustomer
groupings. For example, a labour market consists of people who offer
their work in return for wages or products. Various institutions, such as employment
agencies and job-counselling firms, will grow up around a labour market to
help it function better. The money market is another important market that
emerges to meet the needs of people so that they can borrow, lend, save and
protect money. The donor market has emerged to meet the financial needs of
non-profit organizations.