More on demand and supply
a meeting of a buyer and a seller to arrange price and quantity and make a trade.
Markets are a really big deal in economics.
“Market economics” is the name given to the way of thinking that the best way to organize
economic activity, that is, producing and consuming goods and services, is to assign property rights to all resources to private
individuals (as opposed to the government) and let those self-interested individuals work out on their own, or in free cooperation with
other people (i.e., business firms) how to put those resources to the best use.
Market economics requires that the people who own
these resources be able to communicate their wants to each other and to get together to exchange their resources with each other.
That’s what markets do.
What does a market look like?
It’s pretty variable.
Say you travel to Mexico and go to an open-air market in the middle of town, with
vendors hawking their wares from little tented kiosks, and you stop at a stall where some guy is selling wool scarves.
He tells you how
wonderful his scarves are, blah, blah, blah, and that the price is $50.
You offer him $10.
He pretends to be offended.
You walk away.
He comes after you.
You eventually end up paying $20 for a scarf. Is this a market?
A buyer and a seller meet, arrange a price
and a quantity, and make a trade.
Now, as I’m writing this I’ve just gone to eBay and bought two bottles of dog tapeworm remover pills
for my dear little Lucy.
A few mouse clicks and the pills are on their way.
Is this a market?
The buyer (me) contacted the seller
(some guy in Harwinton, Connecticut, wherever that is)
(“meeting of a buyer and a seller
I looked at his Buy-It-Now
price, thought it was ok (less than half the pet store price), clicked the button, and
entered 2 in the quantity box.
“arrange price and quantity”)
He’ll send me
the stuff, I’m pretty sure, since he has all positive ratings, and I’ve sent him the
money via PayPal.
(“make a trade”)
the pills, as described, arrived in
I want to emphasize the importance of property rights in all this.
pill seller was willing to buy the pills from wherever he got them because he was
confident that he would be able to keep them or sell them as he wished, and that
they would not be taken away from him in the meantime.
He was willing to sell
them to me because of his confidence that PayPal would deliver the money to
And I’m willing to pay for them, confident that when I get them, I can use
them as I see fit.
In a nation without strong property rights, say, Cuba, the seller
would have to worry that the government might confiscate his inventory
If so, he might be better off not buying the pills in the first place, and
the trade would never take place.
Markets can’t work unless participants are
secure in their rights of ownership of the goods and services they trade.