Identification

• In economics, a market is a group of buyers and sellers of a specific good or service. A market usually does not refer to a physical location for the buying and selling of products. "Harper Collins Dictionary of Economics" points out that economists use the word "market" to describe a mechanism of exchange between buyers and sellers of a good or service.
  
  

Features

• In a market, sellers offer their goods and services, for which they set a price, often with an eye towards offering lower prices or better products and services than their competitors. Buyers, meanwhile, vote with their dollars, purchasing the products they want from the sellers that offer the best product in terms of price and quality. If a seller raises prices without offering a significantly better product or service, consumers are free to take their business to a competing firm.
  
  

Types

• Harvard economist Greg Mankiw, author of "Principles of Economics," identifies three types of markets: competitive markets, monopolies and oligopolies. Most economists regard competitive markets as the ideal type of market for economic activity. A competitive market consists of many buyers and sellers, such that no single buyer or seller can influence the market price. A monopoly, in contrast, is a market in which there is only one seller of a product or service, and that seller sets the price. Mankiw cites cable television as an example, noting that in many cities there is only one provider of cable television services. The third type, an oligopoly, is a market in which only a few sellers exist. Mankiw notes that airline routes are an example of a service in an oligopolistic market.
  
  

Benefits

• Most economists consider markets, especially competitive markets, to be the best way to organize economic activity. In a market-based economic system, Mankiw writes, the decisions of families and firms replace decisions by a government economic planner. Households decide what to buy and for whom to work while firms decide who to hire and what to produce and sell. Mankiw adds that despite this decentralized system of economic organization, in which no central figure is working for society as a whole, markets have proven themselves successful in promoting overall economic well-being.
  
  

History

• Adam Smith, the 18th Century economist and author of "The Wealth of Nations," was an early advocate of a market economy as preferable to one based on government central planning. He contended that consumers and companies interact in a market system as if they were guided by "an invisible hand" that leads to optimal results which benefit society as a whole.