1. AN
INTRODUCTION
TO
MARKET SYSTEM

2. TABLE OF CONTENTS
 Market System
 Law of Marginal
Utility
 Demand VS
Desire
 Demand VS
Stock
 Demand &
Supply
 Market
Equilibrium
 Electricity &
Supply
 Gov’t
 Utility

3. INTRODUCTION
 A market system is any systematic
process enabling many market
players to bid and ask: helping bidders
and sellers interact and make deals. It is
not just the price mechanism but the
entire system of regulation,
qualification, credentials, reputations and
clearing that surrounds that mechanism
and makes it operate in a social context.

4. WHY ARE THERE ECONOMIC
SYSTEM?
 Scarcity(The Basic Economic
Problem)
All of us here are busily engaged in
economic activity. And there are
insufficiency in goods and services
to satisfy all the human wants of
society.

5. TYPES
 In economics, market forms are studied.
These look at the impacts of a particular form
on larger markets, rather than technical
characteristics of how bidders and sellers
interact.
 Heavy reliance on many interacting market
systems and forms is a feature of capitalism,
and advocates of socialism often criticize
market features. Competition is the regulatory
mechanism of the market system. This article
does not discuss the political impact of any
particular system nor applications of a
particular mechanism to any particular
problem in real life. For more on specific
types of real-life markets, see commodity
markets, insurance markets, bond
markets, energy markets, flea markets, debt
markets, stock markets, online auctions, real
estate market, each of which is explained in
its own article with features of its application,
referring to market systems as such if
needed.

6. PROTOCOLS
 The market itself provides a medium of
exchange for the contracts and coupons and
cash to seek prices relative to each other, and
for those to be publicized. This publication of
current prices is a key feature of market
systems, and is often relevant far beyond the
current groups of buyers and sellers, affecting
others' supply and demand decisions, e.g.
whether to produce more of a commodity
whose price is now falling. Market systems are
more abstract than their application to any one
use, and typically a 'system' describes a
protocol of offering or requesting things for sale.
Well-known market systems that are used in
many applications include:
 auctions - the most common, including:
 Dutch auctions
 reverse auctions
 silent auctions
 rationing (including the command economy of
some states)
 regulated market (including most real-life
examples as above)
 black market (the term 'black' indicating lack of
regulation)

7.  The term 'laissez-faire' ("let alone") is
sometimes used to describe some
specific compromise between
regulation and black market, resulting
in the political struggle to define or
exploit "free markets".
 As this debate suggests, key debates
over market systems relate to their
accessibility, safety, fairness, and
ability to guarantee clearance and
closure of all transactions in a
reasonable period of time.

8. IMPORT TRUST
 The degree of trust in a political or
economic authority (such as
a bank or central bank) is often critical
in determining the success of a
market.
 Banks, themselves, are often
described in terms of markets, as
"transducers of trust" between
lenders (who deposit money) and
borrowers (who take it out again).

9. UTILITY
 In economics, utility is a measure of
the relative satisfaction from, or
desirability of, consumption of
various goods and services. Given
this measure, one may speak
meaningfully of increasing or
decreasing utility, and thereby explain
economic behaviour in terms of
attempts to increase one's utility. For
illustrative purposes, changes in utility
are sometimes expressed in fictional
units called utils (fictional in that
there is no standard scale for them).

10. UTILITY
 Economists distinguish
between cardinal utility and ordinal
utility. When cardinal utility is used,
the magnitude of utility differences is
treated as an ethically or behaviorally
significant quantity. On the other
hand, ordinal utility captures only
ranking and not strength of
preferences. An important example of
a cardinal utility is the probability of
achieving some target.

11. DEMAND
 In economics, demand is the desire to own
anything and the ability to pay for it and
willingness to pay. The term demand signifies
the ability or the willingness to buy a
particular commodity at a given point of time.
Demand is also defined elsewhere as a
measure of preferences that is weighted by
income[
 Economists record demand on a demand
schedule and plot it on a graph as an inverse
(downward sloping) demand curve. The
inverse curve reflects the relationship
between price and quantity demanded: as
price decreases, quantity demanded
increases. The demand curve is equal to
the marginal utility (benefit) curve. If there are
no externalities, the demand curve is also
equal to the social utility (benefit) curve.

12. DEMAND SCHEDULE
 The demand schedule shows the
quantity of goods that a consumer
would be willing and able to buy at
specific prices under the existing
circumstances. Some of the more
important factors affecting demand
are the price of the good, the price of
related goods, tastes and
preferences, income, and consumer
expectations.

13. FACTOR’S AFFECTING
DEMAND
 Good's own price: The basic
demand relationship is between the
price of a good and the quantity
supplied. Generally the relationship is
negative or inverse meaning that an
increase in price will induce a
decrease in the quantity demanded.
This negative relationship is
embodied in the downward slope of
the consumer demand curve. The
assumption of an inverse relationship
is reasonable and intuitive. If the price
of a new novel is high, a person might
decide to borrow the book from the
public library rather than buy it. Or if
the price of a new equipment is high a
firm may decide to repair existing
equipment rather than replacing it.

14.  Price of related goods: The principal
related goods are complements and
substitutes. A complement is a good
that is used with the primary
good. Examples include hotdogs and
mustard; beer and pretzels,
automobiles and gasoline. Close
complements behave as a single
good. If the price of the complement
goes up the quantity demanded of the
other good goes down.
Mathematically, the variable
representing the complementary good
would have a negative coefficient.

15.  For example, Qd = P - Pg where Q is
quantity of automobiles demanded, P
is the price of automobiles and Pg is
the price of gasoline. The other main
category of related goods are
substitutes. Substitutes are goods
that can be used in place of the
primary good. The mathematical
relationship between the substitute
and the good in question is negative.
If the price of the substitute goes
down the demand for the good in
question goes up,
 Income: The more money you have
the more likely you are to buy a good.

16.  Taste or preferences: The greater the
desire to own a good the more likely you
are to buy the good. There is a basic
distinction between desire and demand.
Desire is a measure of the willingness to
buy a good. Demand is the willingness
and ability to affect one's desires. It is
assumed that tastes and preferences are
relatively constant.
 Consumer expectations about future
prices and income: If a consumer
believes that the price of the good will be
higher in the future he is more likely to
purchase the good now. If the consumer
expects that her income will be higher in
the future the consumer may buy the
good now. In other words positive
expectations about future income may
encourage present consumption
(Demand increases).

17. DEMAND CURVE
 The relationship of price and quantity
demanded can be exhibited
graphically as the demand curve. The
curve is generally negatively sloped.
The curve is two dimensional and
depicts the relationship between two
variables only; price and quantity
demanded. All other factors affecting
demand are held constant. However,
these factors are part of the demand
curve and are present in the intercept.
Economics puts the independent
variable on the y-axis and the
dependent variable on the x=axis.
Consequently, the graphical
presentation is of the inverse demand
function = P = f(Q).