Market Central Market

Market Central Market

Market Central market organizations are of economic interest for three reasons. First, they help to overcome market imperfections. A perfect market is one in with buyers know the prices being offered by all sellers, transport costs do not cause any buyer to deal with one seller rather than another, and buyers have no personal preferences for dealing with one seller rather than another. In practice there is some imperfection in all markets, but the Stock Exchange and central organized commodity markets are very nearly perfect. Secondly, organized markets often provide means for hedging risks of price fluctuations by arranging deals in future contracts. Thirdly, organized markets provide a meeting place for speculators who buy with the intention of selling later at a higher price (bulls) or selling goods they do not own in the hope of being able t0 buy at lower prices when delivery must be made (bears).

Most markets have no central organization. They are classified by the number and size of sellers, the number and size of buyers, the degree to which buyers regard the supplies of different sellers as similar, and the ease or difficulty with which new sellers may enter the market. For example, seller concentration is very different in motor-cars and melons, buyer concentration in transformers and tea; cement of different sellers is regarded as much more similar than dresses of different sellers; entry into window-cleaning is easy and into water supply impassable. Hence the determination of prices and outputs in the many types of imperfect market have to be studied separately.

The term has become widely known by its use in the Common Market to describe the European Economic Community. This is a market created by agreement between six countries to reduce barriers to the movement between them of labour and capital. By thus increasing the scope for exchange of goods and services it illustrates Adam Smith's dictum that the extent of division of labour depends on the size of the market.

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