Components of Markets

1.     The author, John McMillan, defines markets as transactions between buyers and sellers where each party has the ability to veto them. Markets are an essential component of human existence and they have developed along with our culture. McMillan goes into the details of different types of markets, revealing why some are more efficient than others and how they are constantly changing. I like when he compares a market to the biological evolution on species since it is based on trial and error, but there are still some differences in how they are manipulated. McMillan states “Only when the informal rules are supplemented by some formal rules can a market reach its full potential, with transactions being conducted efficiently and complex dealings being feasible.” This is based on the important aspects of markets, transaction costs and government control. Transaction costs are essential to the efficiency of the market because they affect the possibility of transactions as well as the time and energy needed to complete them. The more efficient the transaction costs, typically the more fluid a market will work and therefore, a better economy will be the result. The other important component is government control over the market and McMillan even says “help from the government is essential if the economy is to reach its full potential”. Governments create a structure to a market, establishing rules that help keep things running as efficiently as possible. Too much or too little government intervention could lead to an economy’s destruction, so it is important to find a good balance, which is a very hard task to accomplish since markets are constantly changing.

2.     I have observed the different clashing opinions—one stating that markets exploit the poor and the other stating that they are the base of liberty and prosperity. I believe that the reason for this clash of opinions is the result of various spikes in markets due to variances in government control, resources available, and multiple attributes of society in general. Since markets are constantly changing because of this, it has hard to always trust it since it fluctuates so much. Ironically, this market fluctuation is what makes markets efficient and it helps them involve in a positive direction. People may distrust government control over markets because they may not always agree with how the government is controlling the market and it may favor some more than others. Because of this, I believe that it is best for the government to stay as neutral as possible when interfering with a market and only intervene when absolutely necessary and when it is in the best interest of the nation.

3.     In modern markets, there are certain rules that are set in place in order for them to function as efficiently as possible. For example, there are rules against the formation of monopolies that help markets function better by allowing there to be more competition and taking away the possibility of one person destroying a portion of the market by having too much control. This is an important rule because it allows there to be competition which is what fuels a free market. Without it, one can set their own prices and mess up the market by tampering with set prices, which would affect transaction costs. Also, governments have taxes to help pay for public utilities and help keep the economy stable and they set minimums and maximums on products to help speed up or control the stability of a market. Overall, this may help aid the economy by making the economy as efficient as possible, but it can also take away from the full potential of a free market if it controls too much or the wrong components.