Concept Of Simple Market In Economic Theory

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Concept of the “Simple Market” in economic theory



A market is the interaction between buyers and sellers. The behavior of buyers is described in a demand relationship between price and quantity demanded, on a graph. The relationship between price and quantity demanded is inverse. Behavior of sellers is described by the supply relationship between price and quantity supplied. This relation is direct.
A market is made up of resource markets, production organizations, product markets, and resource organizations. Resources flow from the resource organizations into resource markets where they are bought by productive organizations; they then are turned into products and services and sold in the product market to consumers. Each of these organizations is inner-related in that if one of them is not buying or selling, the “circle” will not work.
The present market now can not be said to be a simple market because the present market has too much government intervention. Another theory in economics is perfect competition. A perfectly competitive market has a large number of firms, the product is standardized or homogeneous, firms can freely enter or leave the market in the long run, and each firm takes the market price as given. There are also no spillover costs or benefits from the products.
In this theory the market relies on the actions of individual customers and individual producers to be guided by their own self-interest. This is the invisible hand at work. This idea looks great in the abstract, but in the real world, this market would need a government larger than the market itself to work properly.
A simple market itself is a generalization of other markets, what a market is in its most broke down form. The buyers in markets are able to build certain trust with firms relating to what they need. Familiarity plays a large role in the relationship between buyers and firms (Klein). When looking at...