Business, Legal & Accounting Glossary
Market interaction in economics refers to the interaction between market forces of supply and demand. The market is an economic system, which determines the price and quantity of a good supplied. A market consists of buyers and sellers of a commodity. Manufactures, retailers, distributors and end-users all constitute a market’s participant matrix.
Market interaction and price are interrelated concepts. In fact, market interactions are conducted with a view to set a price. Price is that, which balances demand and supply in equilibrium. Market interaction varies from one kind of market to another. For instance, in perfectly competitive market firms are price takers. However, in a monopoly a firm possesses a certain degree of market power. Sometimes factors like asymmetric information lead to market failure. Then ‘signalling’ is used as a plausible solution. Market failure is a situation when a market fails to optimally allocate resources without any external intervention.
In a capitalist market framework, a free-market philosophy is followed. Market interactions are free and fair devoid of any governmental intervention. However, in a command economy, a central planning authority takes over market mechanism and controls principal economic activities of production, distribution and resource allocation. In a mixed economy, certain sectors of an economy are open to free-market interactions. However, the government keeps a tab on market developments and actively participates to restore distributive equality of resources among that country’s population.
Market interaction can be looked at from an entirely different viewpoint. This is a micro view of how a firm plans to create a favourable market interaction for building brand value. It then becomes a marketing issue. Analysts analyze economic market interactions to frame effective market-based policies for business firms. A research study on a firm’s research and development decisions and multi-market interaction has revealed that social welfare is optimized when firms go in for centralized R&D efforts.
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This glossary post was last updated: 28th March, 2020 | 0 Views.