Market forces
Also called: Supply and demand · Topic: Markets, Equilibrium and Government Intervention · NCERT: Class 11, Ch 2 "Indian Economy 1950-1990"; Class 11, Ch 3 "Liberalisation, Privatisation and Globalisation: An Appraisal"; Class 11, Ch 7 "Environment and Sustainable Development"
Meaning
Market forces are demand and supply working together. They decide prices, how much is produced, and where resources such as land, labour and capital are used. When demand rises, prices go up and producers make more. When supply rises, prices fall. Market forces are the core of a market economy, where most prices are set by buyers and sellers rather than by the government.
Example
Before 1991, the Indian government fixed many prices, including the rupee's exchange rate. The 1991 reforms let market forces decide more of these prices, including the rupee's exchange rate.
Don't confuse with
- Administered price: a price fixed by the government or a regulator, not by market forces. Examples are the urea MRP and ceiling prices on medicines.
Related concepts
- Market equilibrium
- Equilibrium price
- Equilibrium quantity
- Excess supply
- Invisible hand
- Relative prices
- General equilibrium