Economics » Theory of Price Determination » Concepts of Market and Price

The Concepts of Market and Price

Market:

In common parlance, a market is a place where commodities are bought and sold at retail or wholesale prices. Thus, a market is thought to be a place consisting of a number of big and small shops, stalls, and even hawkers selling various types of goods.

In economics, however, the term “market” does not refer to a particular place as such but, it refers to an arrangement whereby buyers and sellers come in close contact with each other directly or indirectly to sell and buy goods. It follows that for the existence of a market, buyers and sellers need not personally meet each other at a particular place. Thus, the term “market”, in economics, is used in a typical and specialised sense. It does not refer only to a fixed location. It refers to the whole area of operation of demand and supply.

Price:

Price is the monetary value of a commodity or service. It is the amount of money one exchanges for a commodity. In the free market system, the price of a commodity is determined by the interaction of the forces of market demand (the collective actions of buyers) and market supply (the collective actions of sellers). The process by which the market forces of demand and supply interact to fix the price of a commodity is referred to as the price mechanism.

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