Market Price

Market price refers to the price at which the assets, products, and services are bought and sold. It is determined considering the rate at which the product is demanded and supplied. In short, it shows the affordability level of customers, reflecting the cost they are ready to pay for their purchases, which increases or decreases the demand for the same in the marketplace.

The demand and supply of an asset or product directly influence its market price. The increase or decrease in the availability and requirements of the products, therefore, highly affect their prices. This is how the price of an item keeps changing, given the fluctuations in the demand and supply of it.

• The market price is the price at which assets and products are currently bought and sold.
• It is determined with respect to the point where the demand and supply of a financial product or tangible item coincide.
• A market value is different from a normal price, which is permanent and is usually equal to the average cost of production.
• The value keeps fluctuating based on various factors, including demand, supply, employment, income, global events, natural calamities, etc.

The market price is the cost of the products and assets determined with respect to the point where the demand meets supply. It is different from factor cost, which only includes the cost of production of goods and services. On the contrary, the market value has everything included right from the factor cost to other charges, like taxes. In short, the final price at which the products and assets are available in the market includes all the additional costs it takes to reach customers.

The concept of market value for an asset or product varies based on the type, nature, and purpose of the market they are being applied in. For example, when dealing in debt or equity securities trading on an exchange, the securities/share market price is the last price at which traders sell the assets. On the other hand, for securities trading over the counter, the value falls within the range of two extents, i.e., bid and ask prices. However, the market value for tangible items is considered as the cost at which they are sold to customers at a significant distance.

The various parties, such as investors, brokers, dealers, and traders, interact to make this trade happen in the market. In simple terms, for a share to be bought or sold, a buyer and a seller should agree on the same price at the same point in time. The stock market price list comprises buyers' quotes, the bid price they are ready to pay for a share, and sellers' quotes, the ask/ offer price they want to sell the stake at. If it equals, the trade goes through, and the share transfer happens. If not, a difference exists between the two called a spread or a margin. Trade does not go through until that negates or until the dealer/ broker agrees to pay the difference.

Besides the demand for the products and their supply, other factors too affect their market price. The first on the list is a natural disaster. Any natural calamity can lead to a sudden increase or decrease in the prices of assets, products, and commodities. For example, if flood attacks a region producing wheat in maximum quantity, it will surely lead to an increase in the prices of wheat in all other areas worldwide, given the fear of having no wheat left sooner or later.

The next on the list of factors is the global scenario or events. For example, the Russia-Ukraine war has raised the fuel prices to a great extent, leaving the residents around the globe worried about its rising prices in the long run.

Finally, the wages/salaries and employment rate affect the market price. If people have no job and no earnings, their purchasing power will be negatively affected. As a result, they won't be able to buy anything. Therefore, under compulsion, brands either increase or decrease the prices given the situation, which might adversely affect the economies.

Let us consider the following examples to understand how the market value arrangement works.

Example 1

For a stock ABC, the bid and ask prices are $45.50 and $45.51. A trade will take place only when a buyer interacts with a seller via dealers and brokers.

In this scenario, the share would trade only if the buyer increases the bid or the seller decreases the ask price. This signifies how demand and supply for as ecurity should intersect for the market price to be effective and for the trade to occur.

Example 2

Recently the market price of gold reduced significantly, indicating the worst weekly performance. The dip in the prices is expected following Fed's indication of raising the rates soon. According to the financial experts, the current price drop would witness a panic selling scenario as the asset holders might wish to remain as less affected as possible by the turmoil. This shows how global financial chaos might lead to an increase or decrease in the market value of an asset/product.

The price of the tangible and financial market products frequently fluctuates due to the increase or decrease in the availability of products and services. 

If there is a fall in the availability of the products on demand, customers are ready to pay more. This is because the demand is more, and they fear losing out on the items if not purchased instantly.

On the other hand, if the availability of the products increases, it signifies a low demand for the same. Thus, consumers disagree paying more, given the availability of the same quality product at a lower cost somewhere else.

This article is a guide to what is Market Price and its definition. Here, we explain its mechanism along with its influencing factors, economic role & examples. You can learn more about it from the following articles: -

• Differences between Economies of Scale vs Economies of Scope
• Supply Curve Uses
• Cost Basis
• Marginal Utility Definition