Economic Market Structures and Factors

Types of Markets

Markets can be classified based on various criteria:

Based on Information and Transparency

A transparent market is one where agents are related and have all possible information. A market has friction when agents do not have all possible information.

Based on Goods Characteristics

A perfect market exists if the commodity traded is perfectly homogeneous. An imperfect market exists when the commodity is available in various models with different features.

Based on Player Power

A normal market is one where neither buyers nor sellers have the power to intervene in the market price. A forced market exists when they can act on the price.

Based on the Number of Participants

Markets can also be classified according to the number of buyers and sellers involved.

Market Factors and Derived Demand

Market factors refer to the inputs used in production. Demand for a factor is typically a derived demand; an increased demand for a good or service would cause a corresponding increase in the necessary factor for its production. The demands for different factors involved in producing a good or service are interrelated.

The Land Market

This market includes agricultural and urbanized land, as well as all natural resources in general. The amount of land is fixed, meaning its supply does not depend on the price in terms of elasticity; we would say the supply curve is completely rigid. Demand for land depends on its productivity and its price.

The Capital Market

This market consists of all uses of machinery and equipment by a company. The supply of capital depends on the level of income and the remuneration received from savings. The demand for capital has two factors: the expected profitability of the investment, which is the productivity of the money, and the market interest rate, which is related to the demand for capital.

The Labor Market

The labor market involves the working population, whether occupied or inactive. Labor supply has three main factors:

• Size of the population: A larger population generally means a larger potential labor force.
• Activity rates: The number of people participating in the labor force. A higher activity rate increases labor supply.
• Wages: If wages increase, the number of people willing to work also tends to increase.

Labor demand depends on the following items:

• Wages: The cost of labor.
• Labor productivity: How much output workers produce.
• Competitiveness of the economy: The overall health and demand within the economy.

The labor market is often considered imperfect. It can exhibit characteristics of a bilateral monopoly, has a high degree of state intervention (e.g., minimum wage), is very heterogeneous, has limited mobility, and is not always transparent.