The term market is a constantly evolving term because the mere idea of exchange of resources or products with money has gone through a complete metamorphosis.
The reasons behind this are many. The products, the source of the products (resources), the excess or lack of availability of the resources and the target consumers are some of the inherent and constant reasons for the vast change in the way the concept of market was looked at.
There are different ways in which a market model is seen and the experts of economics have always been working on the theories. During the last century the world witnessed an economic crisis called inflation- making big stalwart companies to file for bankruptcy while small scale entrepreneurs survived the storm. A comprehensive study of the idealistic and actual model of the market and delving into the current differences in it is the key to understanding the situation.
Understanding idealistic model of the market
Demand, supply and the price of a product are the three key essential factors of understanding any kind of market. A state where demand, supply and the price of a product all match- such is the ideal state of market. This means all three of them have to have equilibrium.
A theory of Justice is subtly involved in this structuring which is essentially explained in the concept of free market. Free market is one where a third party (in current state, the government) has no intervention. Here the pattern is that of Monopoly business. In simple terms, there is one sole manufacturer of a certain single product and sufficient demand in the market.
In such cases, the three factors are at par with each other which means demand, supply and the price of a product all have equilibrium. But there remains one big question in understanding the concept of market is the fact – Where is the competition?
Understanding actual model of the market
It is this very word “competition” that defines the actual model of the market. One of the essential features of market is the price that a consumer has to pay. In monopoly market, one producer of a particular product knows that the consumer will have to pay the amount decided by him as the alternative resource of the product is unavailable. This ideal situation is broken because monopoly market is always short-lived and other competing producers of the same product helps to decrease the price of the product- a situation beneficial and advantageous for a consumer. Hence in actual market the equilibrium of Demand, Supply and the Price of a Product cannot be achieved.
The Economic Crisis in 2008-2010: Reflection on the difference between idealistic and actual model of the market
Consistent grip over the economy by the big companies is not achievable, had been a fact in the second half of the last decide which was specially evident in the worldwide economic crisis in 2008-2010, USA being a perfect example of the stalwart investors and profitable organisations going at a phenomenal loss. How this loss happened?
The example of the big USA based banks is important in this context to explain the situation. The banks made home loans easier for citizens. Pay your first installment and take possession of the house. Most of the people who took the loan where unable to pay the last installment due to financial crisis that had started in 2008 globally. The banks took the homes from the owners. The number of homes owned by the banks was outnumbered and there were not much buyers.
Doomsday for the big shots
We all know, it is the interest on the loans on which the bank makes its profits. The ones who took loans submitted bankruptcy forms and in due course of time the lack of buyers and the outpouring number of homes that the bank owned turned the banks itself into bankruptcy. There was supply but there was no demand, and until and unless there is no demand and no proper price, the presence of supply doesn’t work, hence the loss of the stalwarts in business. For the small scale entrepreneurs the loss was recoverable for the big shots it was dooms day.
Economists across the globe are of the opinion that social media and advancement of technology have a big role to play in the context of how markets work. And again understanding the gap between the idealistic and actual model is also very crucial. Seeking equilibrium among the three- Demand, Supply and the Price of a Product is the constant endeavor of capitalism but it is the imbalance that positively affects the market as it is the consumers and the sellers who are the biggest beneficiaries of the scenario.