The role of markets in global economic system
In most economies around the world, markets carry out the complex task of allocating resources and producing goods and services.
The marketplace determines what goods and services will be produced and in what quantities through their prices.
Markets also distribute income by rewarding superior producers with increase profits, higher wages and other economic benefits.
Types of markets
There are three types of markets:
The factor markets allocate the factors of production to the owners of productive resources.
The product markets are where the consumers after getting income from factor markets are purchasing goods and services.
The financial markets channel savings to those individuals and institutions needing more funds for spending than are provided by their current income.
Types of financial markets
The money market is for short-term (max one year) loans, while the capital market finances long-term investments by businesses, governments and households.
In particular, governments borrow from commercial banks in the money market, while in the capital market, insurance companies, mutual funds, security dealers, and pension funds supply the funds for businesses.
