The role of markets in allocating resources
What is a market?
- Market - any arrangement that brings buyers and sellers together so that goods, services or resources can be exchanged. A market can be a physical place or an online system.
- Buyer - a person, firm or government willing and able to purchase something.
- Seller - a person, firm or government willing and able to sell something.
- Revenue - the money a seller receives from a sale
- Profit - the amount by which a firm's revenue exceeds its total cost.
Examples include a local fruit market, an online clothing market, the labour market and the foreign-exchange market.
Roles of buyers and sellers
| Market participant | Main role | Typical aim |
|---|---|---|
| Buyers | Create demand by choosing whether and how much to buy. | Gain satisfaction or obtain an input for production. |
| Sellers | Create supply by choosing whether and how much to sell. | Earn revenue and, for firms, usually profit. |
| Both together | Their decisions influence the market price and quantity traded. | Reach exchanges that both sides accept. |