English- level 6

The Markets role in economic theory

Today, the world is recognized as being capitalist, and because if
this, people have to understand the meaning of offer and demand in
order to comprehend the world they live in. Once they grasp this
dynamic they are able to take advantage of all the resources available.
In this order of ideas, economy can be understood as a social science,
which tries to satisfy human necessities, when the resources are scarce.
This is why the economic theory has created the market idea. It is
recognized that the market has a very important role within economic
theory mainly because it fixes the scarcity issue, in spite of the fact that
it implies both advantages and disadvantages.

Scarcity is the worst problem in a humans economic life. There is

scarcity when someone cant satisfy his or her own necessities. In fact,
scarcity forces people to work in order to produce and afterwards
consume everything they need, acting like mental pressure. This
phenomenon makes any economy more dynamic. Some time ago, when
the resources began to decrease and humans necessities increased,
people decided to dedicate in only one job, so that they could produce
things in a bigger scale. Thus, the first reason for interchange appeared,
because since each person was dedicated to only one work they did not
have all the things that they needed. At the same time, the need for

these people to establish property over their work, appeared, because

they needed some kind of warranty to make interchange possible. This
represented a contradiction, because the division of the social work
made the product of each individual available to others, but the property
right implied, at the same time, that the other people couldnt use
another persons production1. One of the ways, by which the economic
theory tries to fix this contradiction, is with the market idea.

The market implies an advantage to the economy, only when it

works properly. In this order of ideas, it is important to understand the
true meaning of market.

Homero Cuevas states that, the market is

composed by a set of contracts through which people interchange

property rights . Even though the economic theory uses several models
2

depending on the situation, the most important and easiest market

mode is the basic markets model. Its based on rationality3, adequate
information

and the capacity to change jobs. Overall, the market is and

advantage for the economy, when the information, the rationality and
the capacity to change jobs are all present. This can be seen when both
producers and consumers can decrease costs, and increase profits
because of the conditions the market proposes.

Cuevas, H. (2004). Pag . 35

Ibid. Cuevas, H. (2004). Page 23.
3
Its when people follow the same behavior, they follow their benefit. In others words, people calculate their
actions, analyze their alternatives and choose the best. Op.cit. Cuevas, H. (2004). Page 45.
4
When you can know all about the things that you need, therefore, you know about quality, price and cost of
each product.
2

On the other hand, the market represents disadvantages when one

of the components explained above, are not present. An example of this,
presents when there are externalities, which make it impossible for
people to decrease all costs and increase profits. For example: when
leather producing companies clean their product in the rivers, the water
is polluted, but if company never pays for this damage, the market
leaves out an environmental cost.

Another market disadvantage is

monopoly, because under these circumstances the market doesnt work

properly, and there is no competition. In that moment other businesses
dont exist or slowly disappear, which leaves the customer with an
imposed price.
In conclusion, it is possible to say that the market is important
because it acts as a bridge between people and their own properties
rights, in order to fix the scarcity issue, while dealing with advantages
and disadvantages. In others words, the market is the best mean or
source of information for people in everything that concerns economical
aspects. Today, we live in mixed economies where we have to endure
some spontaneous failed operations, as a way to receive spontaneous
successful operations. In this order of ideas, we have to run huge risks if
we want to win or increase our own profits. This is why it is so important
for us to ensure that the market works properly, so that it helps decrease
this risk.

Bibliography:
Cuevas, Homero (2004). Fundamentos de la economa de mercado.
Bogota

D.C.

second

publisher.

Externado

University.