Market Concepts and Types

The Notion of a Market

Market Definition

• A market is a place, either physical or abstract, where suppliers and demanders meet to exchange goods and services for a price.
• Concrete markets: Have a physical location and require a face-to-face meeting (e.g., souk, supermarket).
• Abstract markets: Lack a specific location or physical meeting (e.g., labor market, foreign exchange market, online marketplaces).

Market Components

• Every market has components, they are:
  • Supply: The quantity that suppliers are willing to exchange. It depends on the type of the market.
    • Examples include production, sales, turnover, fish capture, agricultural harvest, and imports.
  • Demand: The quantity that demanders are able to take.
    • Examples include exports, purchases, consumption, and expenditures.
  • Price: The consideration resulting from the confrontation between supply and demand.
    • Examples include rates and consideration.

Example 1

• An association granted aid to a football team following good results, after which the team decided to buy a quantity of sportswear by launching a call for offers. The results are shown in the table:

• Observations:
  • As the price increases, the supply also increases. Therefore, supply is a directly proportional function of the sale price.
  • As the price increases, the demand decreases. Therefore, demand is an inversely proportional function of the sale price.
  • 20 is the equilibrium price because it equalizes supply and demand.

Example 2

• A merchant enters the Casablanca wholesale market to buy tomatoes per thousand KG. The breakdown of supply and demand is as follows:

• Tasks:
  • Draw a graph where quantity is on the x-axis.
  • Determine the equilibrium quantity and price from the graph.

The Law of Supply and Demand

• It is the law that organizes the exchange of goods and services, and especially the two main components of the market: supply and demand.
  • When supply is greater than demand, the commodity is readily available, and consequently, prices fall.
  • When demand is greater than supply, there is pressure on goods, companies produce more, recruit more workers, their costs increase, and therefore prices increase.
• Note: Sometimes, supply exceeds demand, yet prices increase. This could be due to speculation, transportation problems, or the existence of several intermediaries.

Types of Markets

Market for Goods and Services

• A market where goods and services produced/carried out by various economic agents are exchanged.

Labor Market

• A meeting place for the supply of labor (households) and the demand for labor (companies and administrations) of economic agents.

• NB: When we talk about jobs, it is necessary to pay attention because the demand for jobs comes from households and the supply of jobs (positions) comes from companies and administrations.

Capital Market

• A market on which capital is exchanged between agents in deficit and agents in surplus. The capital market is divided into 2 namely financial market and monetary market:

Financial/Stock Market

• The market on which medium- and long-term securities, such as shares and bonds, are issued and exchanged (sold).

• Primary Market: Where shares and bonds that have just been issued for the first time are sold. It is also called the "New" market. When we talk about an IPO or a sale of capital, it is the primary market.
• Secondary Market: Where securities (shares and bonds) that have already been sold are sold. This is the used market.

Money Market

• Where short-term liquidity is exchanged. It is divided into two:

• Interbank Market: A market reserved for banks that exchange liquidity for a relatively low interest rate. In this market, banks only resort to BAM as a last resort.

• Negotiable securities: A market reserved for all agents to exchange financial securities (treasury bills, certificates of deposit, commercial paper). These securities are bought and sold on this market.

Foreign Exchange Market

Definitions

• The foreign exchange market is the virtual place where the supply and demand for currencies meet. A currency is an internationally accepted money by virtue of exchange, but a money is not necessarily so.
• Exchange: Operation of converting one currency into another in order to carry out a transaction with another country.
• Parity / Exchange Rate / Exchange Rate: The price of a currency expressed in another currency (e.g., 1 \, \text{euro} = 10 \, \text{DH}).
• NB: In reality, a foreign exchange transaction occurs when dealing with financial operations (credit, purchase of public debt) or during commercial operations such as exports and imports.

Exchange Rate Regimes

• The exchange rate regime or exchange system is the policy put in place by the authorities of the country, in this case its central bank, to control its currency (increase or decrease in parity).
• There are conventionally two regimes (fixed and floating) and another called "intermediate":
  • Fixed Regime: The value of the currency (parity, exchange rate) is fixed by the central bank and the latter (the CB) intervenes to adjust the value of its currency if it changes.
  • Free or Floating Regime: The value of the currency is free to change according to the supply and demand for this currency.
  • Flexible Regime: The currency depends on supply and demand, but beyond a certain rate, BAM can intervene. This is the case of Morocco where the DH fluctuates within 5% +/-