How Markets Work (Cambridge (CIE) IGCSE Economics): Revision Note

Definition of a market

• A market is any place or process that brings buyers and sellers together to exchange goods and services

  • This exchange can happen in a physical location (such as a food market in Jakarta) or through a virtual platform (such as Alibaba or Amazon)

Examples of markets

• A product market is one where buyers and sellers meet exchange a physical good

• A factor market is one where buyers and sellers meet to exchange factors of production

Roles of buyers and sellers

• In any market, both buyers and sellers play essential roles

  • In an efficient market, sellers respond to what buyers want, and buyers choose between competing sellers

  • This interaction helps determine prices and quantities

Buyers

• Also known as consumers or demanders

• Their choices and preferences determine demand for goods and services

• They help to set prices by signalling how much they are willing to pay

  • For example: A buyer in Mexico City searching for the best price on mobile phones influences how firms set prices to compete

Sellers

• Also known as producers or suppliers

• They aim to supply goods or services in order to make a profit

• They decide what to produce, how much and at what price based on costs and expected demand

  • For example: A coconut farmer in the Philippines choosing whether to sell to local markets or export to Singapore