Understanding Markets

Class 07 Social Science

A place where people buy and sell goods is called a market. This can be at a physical place or, as is becoming popular today, online.

Goods and services become available to individuals, households, and businesses through markets. For a long time, people have relied on markets to fulfil their needs and wants for goods and services. In addition, markets connect people, traditions, and ideas.

Certain features are required for places to be called markets. Every market has a buyer and a seller. They both need to agree on a price at which the transaction would take place.

Prices and Markets

The amount of goods offered by the sellers and the amount required by the buyers help determine the price of the goods that is just right.

Markets Around Us

A physical market is where buyers can meet the seller physically, and purchase goods or services in exchange for money. This is the most common type of market. It includes weekly markets and haats where vendors sell vegetables, other essential items, and handicraft items. Local markets with shops and vendors selling street food, and so on are also physical markets. There are also multi-storey buildings (malls) in cities and towns spanning large areas with stores inside.

Today buyers and sellers need not necessarily meet in person to engage in a transaction. They can transact from a convenient location even thousands of kilometres away from each other. They can use shopping applications (apps) or websites on a phone or a computer. One can buy goods ranging from books, clothes, furniture, and grocery items to electronic items like TVs, mobile phones, and laptops, and get them delivered to their doorstep.

There are other types of markets that do not transact goods and services. One of them is the share or stock market.

Domestic and International Markets

A market where goods and services are bought and sold within the geographical boundaries of the country is called a domestic market. For example, to print this book, paper was procured from big paper mills located all over India. The transaction between the buyer and the seller took place within the country.

International markets exist outside a nation’s boundary. The sellers in one country export their products to another country, or the buyers in one country import products produced in another country.

Wholesale and Retail Markets

In the case of physical markets, wholesalers buy goods in large quantities from the producer or manufacturer of the product. For example, grains, vegetables, and fruits are bought by wholesalers directly from the farms. The produce is then stored in large warehouses called godowns. In the case of perishables, the warehouses may also have cold storage facilities.

Similarly, there exist wholesale markets for other commodities like chemicals, electronic items and components, construction materials, automotive parts, etc.

The wholesalers supply goods to the shops and stores located near households. These shopkeepers are called retailers. They sell goods to final consumers. Unlike wholesalers, retailers sell in smaller quantities, and the products are meant for consumption rather than resale. Retail stores also exist for services like salons, movie theatres, and restaurants.

In some cases, it may be difficult for wholesalers to reach a large number of retailers because of distances and terrains. Distributors help to bridge this gap.

However, the distribution channel is different in the case of online markets. Here manufacturers send bulk quantities of their products to the warehouse of the business that sells through online apps. Consumers buy the product from the online option (website or mobile application). These businesses are called aggregators. The aggregator then packs the products and delivers them to the online buyer.

Government’s Role in the Market

Markets function through interactions of demand from buyers and supply by sellers. However, there are some situations in which this may not work very well. The government plays a crucial role in such situations. It monitors the interaction between consumers and producers, and fair determination of price

Controlling prices for protecting buyers and sellers

The government controls the prices of certain goods. For example, it sets the maximum price that the seller can charge. Several essential goods and services, such as lifesaving drugs, have an upper limit on their prices. Another instance is where the government sets the minimum price at which essential agricultural products like wheat, paddy and maize can be sold. This ensures that farmers do not incur losses. The government also sets minimum wages for work done by employees so that employers make fair payments to them.

Ensuring quality and safety standards

The government has a role in ensuring the welfare of consumers and protecting them from unfair practices. The government ensures that manufacturers follow the required quality and safety standards while producing goods and delivering services. For example, pharmaceutical companies manufacture medicines for treating diseases. The government sets procedures for approvals of medicines and conducts sample testing to check if the produced drug meets standards of quality. These regulations ensure the quality and safety of the drugs so that there is no risk to the consumers’ health.

Mitigating the external effects of markets

Markets sometimes have significant effects beyond the selling and buying. For example, the markets for certain goods require production in factories that could pollute the environment. The government plays a crucial role in understanding and controlling such effects of markets. For example, when the manufacturing of certain items, like single-use plastics, pollutes the environment and poses health risks to consumers. In such cases, the government intervenes by implementing strict regulations to mitigate these negative effects.

Similarly, the government puts in place systems to monitor the weights and measures of the packaged products to check the net quantity contained in the package.

Providing public goods

Producers make and sell goods and services to be able to make a profit. However, there are some goods and services that producers do not expect to make a profit on. For example, public parks, roads, policing, and so on. So, the government provides these public goods and services.

Consumer Awareness

Government agencies provide certifications that help buyers to assess product quality. Their presence on the product or its package confirms that the product fulfills the minimum quality standards.

FSSAI means Food Safety & Standards Authority of India and its symbol on the food packets and cartons indicates that food has been tested by the government and is safe to consume.

Indian Standards Institution (ISI) Mark, issued by the Bureau of India Standards (BIS), is generally present on electrical appliances, construction materials, automotive tires, paper, etc. This ensures quality and that the product is safe to use.

AGMARK (Ag for agriculture) is the certification mark for agricultural products like vegetables, fruits, cereals, pulses, spices, honey, etc.

Electronics items like TVs, laptops, air conditioners, etc. have BEE STAR rating. BEE stands for Bureau of Energy Efficiency. These ratings are printed on the product package as stars. Higher stars indicate that the appliance uses less energy and electricity. This is good for consumers as the electricity bill would be lesser and good for the environment as well.