Behavior of Markets - Macroeconomics Essay Example

Markets refer to interactions that occur between people, institutions, and the society and the end result is that there is an exchange of goods and services. There are various markets, which include labor markets, product market, and financial markets. Market behavior, on the other hand, refers to the decisions that are made in the market, that influence whatever is produced or consumed. The market behavior is believed to be rational, where decisions are made on the basis of facts that can be supported by available data and information. The aim of this paper is to discuss market behavior in detail, which will help understand the various factors that may influence the behavior of the markets.

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Market behavior is important in that it influences whatever people have to consume, whether one gets employed or not and whether the living standards of the people in the society will be improved. In some cases, the markets may misbehave, and this is where external forces intervene to ensure that the behavior is corrected. This depends on the market that is involved and how the consumers are affected. This is why there is a need to understand how the markets behave and how their behavior is shaped by other factors (Azzopardi, 2012). There are social, political and economic factors that shape the behavior of the market.

Forces of demand and supply and the market behavior

In a free market economy, the forces of demand and supply shape the behavior of the stakeholder such as customers and producers. When the demand in the market is high, the behavior of the businesses is to increase the production so that they can meet the growing demand. They are enticed by the prices that prevail in such situation because when the demand is high, the prices are also high and the businesses can benefit in a great way if they produced more. The owners of the factors of production thus make the decision to produce the goods whose demand is high, and reduce the production of the products whose demand is low since it is less profitable to produce such goods.

When the demand for goods and services in the market is high, the labor markets also behave in a way that ensures that there is an increase in production of goods and services that have a high demand. This is why there is a tendency to hire more employees because producing more goods requires that more people are hired to offer their services. To attract more people to leave other jobs and get hired, the businesses may offer a higher wage rate, and this changes the general wage rate in the labor market.

The supply in the market, on the other hand, is another factor that influences the behavior of the market. When there is an excess supply, the companies struggle to achieve more profits by selling as much as they can. The behavior, in this case, shifts to reducing prices so that more customers can buy the goods and hence achieve greater revenues. The businesses also result to firing some employees so that they can lower the costs of production. The recent example is the behavior of the oil markets, where there has been an oversupply of oil because of entry of Iran in the market as well as increased oil production by the United States (Puko, & Ailworth, 2016). With the low prices, the customers also change their behavior as they can buy more of the cheap product in the market. They end up buying more of the cheap products and other related products, more specifically, the supplementary. This is why the demand for vehicles has been on the rise as customers use less cash to fuel their vehicles.

Based on the discussion, the forces of demand and supply in a great way shape the behavior of the market. The customers and suppliers make decisions that favor them, and the effects are that they behave in a certain predictable way. The market behavior is thus predictable based on economic theories because each of the stakeholders in the market is expected to behave rationally. All the stakeholders in the market seek to benefit from the prevailing market conditions, and this is why it is possible to predict the behavior of the markets.

Features of players in the market and market behavior

There are various characteristics of the stakeholders in the market that influence the behavior in the market. The market structures have different features, and they shape the behavior of the stakeholders in the market. Looking at the monopolies, their behavior is such that they aim at maximizing profits that are generated. This is why they can raise and lower the prices charged without consultations. This is considering that the monopolies have great power and the consumers do not have alternatives in the market. Another example of a market is the oligopolistic competition markets, where the number of firms in the market are few, hence the decision by one can influence the market significantly (Azzopardi, 2012). The firms in such a market do not compete because competition makes them worse off. The behavior of the market is to collaborate and charge prices that favor them and ensure that they generate the greatest amounts of profits.

The characteristics of the consumers, on the other hand, influence their behavior. Some of the consumers in the market have a high-income level, and this is why they tend to buy more expensive products in the market, as a way of showing off to the rest of the society. This means that the behavior of some consumer may appear to be rational, because they wish to protect their image. It is thus common to find a customer buying an expensive product regardless of whether there are cheaper products, which may appear irrational (Brakman, 1998). This means that the customers may behave differently from what they are expected because of some other motivation.

Politics and market behavior

There are various political decisions that influence the behaviors of the market. When a government is formed, there is the development of various policies that regulate the markets. An example is the taxes that are levied by the government that takes over. If a government increases the taxes certain products, the behavior in the market changes. The producers of such products end up reducing the quantities that they produce. This is considering that the costs of producing the quantities that they were producing before has increased and they can no longer afford to produce the same quantities (Azzopardi, 2012). The producers also increase the price of the products that are taxed in order to transfer some of the costs that they have incurred as a result of the new policy by the government in place.

On the other hand, the customers reduce their consumption of the taxed products because they cannot consume the quantities that they would afford with their previous income. This behavior by the customers also depends on the type of commodities that are involved. Some products such as basic needs may not change the behavior of the customers because they need such products to survive. They are thus willing to spend even more so that they can get the basic needs that are important for their survival (Brakman, 1998).

The political environment also influences whether the business people invest their money in a country or not. When there is peace in a country and there is good infrastructure, the costs of doing business reduce and many investors in such a situation are willing to invest and offer their goods and services in such an environment. The business organizations operate where there are rules that are simple and do not oppress the operations (Azzopardi, 2012). If the procedures of setting up a business are complex and long, there are chances that the business will try to operate in another environment where there are better regulations that are favorable.

Based on the evaluations, the political decisions that the various governments make influence the behavior of the markets. The reason is that the stakeholders in the market are after achieving the greatest benefits from the decisions that they make (Becker, & Murphy, 2000). They thus respond to the environment that is created by the political system that is in place.

The expectations of the stakeholders in the market shape the behaviors of the markets. The expectations may be as a result of future economic, or political changes. An example is the expectation of a change in regime, where the investors may not be aware of the policies that may be put in place hence influencing the business activities. When the investors expect that there are chances that the new regime will increase taxes and make it more costly to operate a business, the businesses may be shifted to other countries where there are better economic policies. This consequently affects the supply of the final products in the market, the prices that are charged for the available products and the unemployment rates increase (Becker, & Murphy, 2000). The opposite is true because when the political regime that is to come in is expected to provide a better environment, there is a tendency for companies to increase investments in such a country.

Other expectations may relate to the expected increase in the supply of a commodity or shortage of the same. An example is the case of oil, when any expected shortage makes the retailers to hoard the product considering that shortages are likely to lead to an increase in prices for the products. The hoarding behavior is motivated by the greed to reap more benefits from the expected future shortage. In other instances, expected increase in the supply of a product may encourage the customers to delay their purchase of such products up to the time when the supply has increased, and the prices are fallen. In such a situation, the customers benefit from the lower price of the products (Azzopardi, 2012).

Purpose of markets and the behavior

Companies exist for various reasons and this in a great way shapes the behavior of such companies hence the market behavior. First, markets which are interested in making profits will only provide goods and services at prices where they are able to generate profits. They will thus charge a higher price regardless of whether the majority of the customers cannot afford the goods and services that are offered. An example is the oil sector, where the companies cannot sell oil at a loss because their major objective is to generate some profits. On the other hand, some business entities are after serving the society, and this is why they may not adjust the prices that they charge even if the costs increased (Brakman, 1998). An example is the education sector where the colleges may not increase the fees that they charge to the students regardless of the increase in costs. This is because the major objective of such colleges is not to generate profits. This behaviour is more common when the firms involved are companies or business entities that are owned by the government.

There are different kinds of economic systems in the world, and they in a great ay influence the behavior of the markets. In a planned economic system, the forces of demand and supply do not influence the behavior of the stakeholders in the market. This is because the owners of the factors of production is the community or the government, hence the decision to produce and for whom to produce lies with the government. The government dictates what is to be produced and in hat quantities (Azzopardi, 2012). The government thus evaluates the needs of its people, and then determines what is to be produced, and the output is shared to the society.

On the other hand, mixed economic systems lead to different behavior of the market. This economic system has a mixture of free and planned economic systems. In this case, the markets behave depending on the incentives that the government provide. An example is where the govern...