A market is that sphere of competitive rivalry within which buyers and sellers meet to effect exchanges. Exactly what constitutes a given market often is uncertain and controversial. Traditional markets outlined by such geographical boundaries as the Pacific Coast or by such classifications of products as wrapping materials do not always serve as adequate guides. A market should include all the firms that have a sufficient and immediate effect on each other so that the actions of each will have direct repercussions on the welfare of the others in a direct manner. This obviously should cover all products that are direct substitutes for each other; the real problem relates to the products that are only indirect substitutes. When should these be lumped into one market or when should they be divided into separate ones?
Both the amount of anything that is offered for sale and the amount that buyers stand ready to buy depend upon price as the ultimate regulator. It is within the general confines of price determination to state that more will be offered for sale as prices rise and that less will be offered as prices fall. Conversely, the amount demanded will vary inversely with price. Since changes in price affect in opposite directions the amounts offered and taken, it follows that at some price these two quantities will be equated. The basic function of price changes is to equate the quantities supplied and demanded, and thereby to clear the market. So long as there is a single price on the market, at a given time for a given commodity, the price that clears the market is called an equilibrium price. Now there are several ways in which the forces of demand and supply may manifest themselves in a market to determine price. Thus markets are characterized and classified by varying degrees of competition among sellers, among buyers, and between sellers and buyers.
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