Understanding the Function of Markets Through Different Theoretical Perspectives

Understanding the Function of Markets Through Different Theoretical Perspectives

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Understanding the Function of Markets Through Different Theoretical Perspectives

The aim of this essay is to answer the 2 parts of the provided
question. In the first part I will discuss the different markets
models and how those different models describe the way markets
function. While the second part will discuss how and why markets are
limited and failure cases happens. An example case of a market failure
is to be provided to assist this part of the discussion, and for this
purpose I chose the affect of SARS in the airline and tourism markets
as an example.

How the use of different theoretical perspectives can help us in
understanding how markets function

Markets are a mechanism which allows people to trade normally,
governed by the Law of Supply and Demand. Markets have different
structures or models, all function under the view of competition.

Competition in economic terms is understood to be the situation in
market where the monopoly power is absent or very limited and no power
is influencing product price or quality. Hence a competitive market is
the one in which none of the participants possess market power. A
competitive market achieves efficiency in the allocation of scarce
resources if there are not other market failures present.

The major four known competitive market models are:

1- Dynamic Competition put forward by J. Schumpeter.

2- Perfect Competition put forward by the Neo-classical followers.

3- Competition as a process of adjustment to change, put forward by F.
Hayek; and

4- Competition as a power struggle, put forward by Sen.

The main characteristics that define a market model are:


... middle of paper ...

...g to major losses. Cattle
were slaughtered in order to stop the disease, as well as recalling
meat from the markets.

Cattle prices dropped down demand on meat transferred from European
and American to Asian countries, although the overall consumption of
the beef market dropped down. Employment in this sector of industry
was cut down as a lot of the specialized butchers did not find
customers any more.

Not only farms, livestock market and beef retailers got hurt; but also
the fast food industry got harmed, MacDonals for example shifted to
marketing non-beef products like Chicken Nuggets and Vegi Sandwiches.
This is because of the general fear the spread among public, which
shifted the taste to alternative items for meat. A social effect which
continued to some extent even after the threat has almost disappeared.

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