Chapter 2 – Markets and Society 1
Chapter 2
MARKETS AND SOCIETY
Microeconomics in Context (Goodwin, et al.), 3
rd
Edition
Chapter Overview
This chapter points out that the economy may be understood as existing within “three
spheres” of activity; not only businesses (estimated at 58% of the economy), but also the
core sphere, comprising economic activity that occurs within households and
communities (32%), as well as the public purpose sphere, of government and not-for-
profit activity (10%). The chapter then discusses markets, first by defining markets in
different ways and listing the institutional requirements for smoothly-functioning
markets. Markets are further classified according to what is sold and how prices are
determined. The chapter ends with a brief discussion of the advantages and
disadvantages of markets, a topic that will be discussed frequently throughout the book.
Objectives
After reading and reviewing this chapter, you should be able to:
1. Differentiate between the three spheres of economic activity.
2. Understand the three different meanings of “markets.”
3. Describe the institutional requirements for well-functioning markets.
4. Classify markets according to what is sold.
5. Classify markets according to how prices are determined.
Key Terms
core sphere public purpose sphere
public good business sphere
informal sphere market (first meaning)
market (second meaning) institutions
market (third meaning) laissez-faire economy
private property explicit contract
implicit contract physical infrastructure
money retail markets
wholesale markets intermediate goods market
resale market commodities market
labor market financial market
underground market posted prices
market value auction market
open auction Dutch auction
sealed-bid auction double auction
bargaining