Learning Path: Markets in Economics

Definition of a market in economics

In economics, a market is a system of institutions, procedures, social relations, and infrastructures that enables parties to exchange tradeable items. Typically, sellers offer goods, services (including labor), or rights in exchange for money from buyers, and the market helps establish the value of those items. Markets also support the distribution and allocation of resources in society, and they can arise spontaneously or be deliberately constructed to facilitate exchange of rights such as ownership. A defining feature of markets in mainstream economic theory is the price mechanism: prices convey information among economic entities (e.g., firms and households) that helps coordinate production and distribution. This coordination role is contrasted with firms, where internal hierarchy replaces many market transactions. Markets vary widely by product and factor traded, location and scale, regulation and legality, and other characteristics such as liquidity, speculation, and volatility.

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Markets as coordinating mechanisms using prices

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