The concept and main elements of the mechanism of market functioning

Starting to consider this issue, it is necessary to emphasize that the modern economy is a numerous constant flows of goods and services moving towards each other from the most remote points of national economies and the world community. And only the market connects the producers of these goods and services, who communicate in the language of prices and solve the three main questions of economic development: “What to produce? How to produce? For whom to produce?”

It should be noted that the system of markets has a certain internal order, obeys the established laws and is able to self-regulate, thanks to the operation of the mechanism of the functioning of the market. It can be defined as a mechanism for the formation of prices and the distribution of resources, the interaction of market entities regarding the setting of prices, the volume and structure of production, supply and demand.

The main elements of the mechanism of market functioning are:

price (P) is the amount of money paid per unit of goods;

Demand (D) is the demand for goods presented on  the market, determined by the quantity of certain goods that consumers want and can buy at prevailing prices and monetary incomes;

supply (S) is the quantity of goods that are available for sale at a given price or can be delivered to the market;

competition, Latin concurrentia is rivalry,  the competitiveness of separate commodity producers for market share and profit, for receiving an order or achieving other goals and benefits or between consumers for the purchase of goods, obtaining services at favorable prices.

The interaction of these elements of the market mechanism can be traced to a specific example. Let’s imagine that with an increase in well-being and an increase in income, people have the opportunity to change the structure of nutrition: they begin to reduce the consumption of bread and consume more vegetables and fruits. As a result, the population will increase purchases of vegetables and fruits, which will lead to an increase in prices for them and reduce the demand for bread, which will be accompanied by a decrease in the price of this product.

Consequently, bread producers will suffer losses and will be forced to reduce grain production, reduce the area sown for these crops. The production of vegetables and fruits, the prices of which have increased, becomes profitable, which interests farmers (entrepreneurs) in expanding the area of their cultivation and increasing production volumes. At the same time, cultivation and processing technologies are being improved, the best varieties and best practices in organizing production are being introduced, etc. The possibility of obtaining high incomes attracts other farmers who were previously engaged in grain production, to expand the area for vegetable crops or orchards. At the same time, competition for the buyer, for sales markets will gradually increase between these manufacturers.

Thus, it can be concluded that all elements of the market mechanism are interrelated, and this interaction constitutes its content and ensures the self-regulation of the market. The importance of the mechanism of the functioning of the market implies a more detailed consideration of the essence of its elements.