2.1. The role of markets in allocating resources
- Syllabus
- 0455–2027–2028
- Topic
- 2.1
- Level
- —
Learning objectives
Understand how a market works
A market is any arrangement that brings buyers and sellers together so they can exchange a product, service or resource. It does not have to be a physical place: the essential feature is that demand from buyers can interact with supply from sellers.
| Type of market | What is exchanged | Example from the evidence |
|---|---|---|
| product market | a good or service | sugar, furniture, solar energy, onions or gold |
| foreign exchange market | one currency for another | currencies are bought and sold |
Buyers create demand by signalling what they are willing and able to purchase. Sellers create supply by offering products and deciding how many resources to devote to production. Their interaction helps determine the market price and quantity traded; rising demand and prices can encourage sellers to allocate more resources to that product.
A market is not the same as one shop or one seller. It is the whole exchange arrangement linking the relevant buyers and sellers, whether they meet face to face or through an organised system.