Types Of Market In Uae

Published Date: 02 Nov 2017

Contents

Introduction

Economics is defined as a science which studies human actions as a relationship between choices and scare means. This makes economics all about people and the choices they make. In any economy, there are scarcity of goods and services. It is not possible for everyone to buy all the goods and services desired in the market. This scarcity in the market leads to choice, which makes an individual select between various options for goods and services under his/her budget. The decision of choice leads to opportunity cost, which is the next best alternative forgone in pursuing a good or a service. This decision is made by every individual and in every economy. The next thing which is important to know is the prices of these goods and service. These prices are determined by the market forces of demand and supply. Every market has a set amount of products and has a demand and supply from the customers which adjusts prices and output. To satisfy the wants of the customers as much as possible, given their limited resources and to allocate resources to its best, the market mechanism plays an important role. These mechanics are the forces by which demand and supply settle on prices and quantities of goods and services offered for sale in a market which is free from any regulations. In every economy, sellers try to sell at a higher price to get more profits and customers try to buy at the lowest possible price to get full satisfaction, but in a competitive market neither buyer nor seller can control the market price. Any market which meets the characteristics of many buyers and sellers, having proper knowledge about the market and the good they sell are identical is said to be competitive. In such a market, prices are determined by the forces of demand and supply which also establishes market equilibrium.

Types of Market in UAE

In UAE there are different types of market. These include,

Perfect competition: This is when there are many buyers and sellers in the market for a good having same characteristics. In this market, there are no barriers to enter or exit the market. The government plays a small role in this market and the prices are established by the forces of demand and supply through market mechanism. Example of this kind of market can be producers of agricultural goods

Monopoly market: In this market there is a single seller with no competition. The prices in this market are set by the monopoly holder. The buyers have no choice then to buy the product from that company. An example of this kind of market can be Electric company or Gas producers

Oligopoly market: This market system consists of few leading suppliers. The barriers to entry are a lot as the investment is large and not any one can enter the market easily. The products can be identical or little different. Usually the main form of difference in this industry is advertisement. An example can be Air line or Telecommunication industry.

Controlled market: In this market the government controls the price of goods and services by regulating laws through minimum or maximum prices. The seller has little or no control over the market and they are forced to act as per the requirements of the market. For example the banking sector in the UAE is controlled by the state bank regulated by the government. The interest rates charged by the banks are determined by the central bank.

The real estate industry in Dubai is also a between perfect and oligopoly market which has been controlled by the government as well. It consists of few participants, where buyers control during a buyer’s market and seller controls during a seller’s market. In this market both buyers and suppler are not well-informed about the market and the government has a vital function in encouraging or discouraging through the monetary and fiscal policies.

Aggregate Demand and Supply

The market is adjusted and the prices and output are determined in market through aggregate demand and supply. Aggregate demand is the total value of all the goods demanded in the economy, while the aggregate supply is the entire worth of the production of the UAE economy. A product for example cell phone comes under the durable good market. In this category, the aggregate demand for the cell phone is affected by consumer’s income, the more the income they have the greater the amount of consumption of cell phones. Another component which would affect the demand of cell phone is fashion and style. If the cell phone is brand new and is in fashion in the market, it will have high demand. The number of population in the economy can also affect the aggregate demand of the product. A raise in the price of an alternate cell phone can also affect the demand for this cell phone as more mobile users would convert their purchase to this cell phone. Whenever the demand in the market would increase, the price of the cell phone would also increase due scarcity of product and a lot of demand. On the other hand, the supply of the cell phone would be determined by the increase or decrease in the cost of production through the factors affecting production such as labor and capital. Any increase in the price cost of production would reduce the aggregate supply and vice versa. The point where the aggregate supply and demand interacts would determine the equilibrium point where the market price and output of the cell phone in a free market. Whenever the supply of the cell phone would decrease the price of the product would increase because of shortage in the market.

Factors affecting aggregate demand and supply

The aggregate demand is calculated by adding consumer spending, Business investment, Government spending and exports. The factors that determine the aggregate demand curve include;

Reducing/Increasing income tax and interest rate to affect the consumer spending.

Reducing/Increasing business taxes and interest rate to encourage investments.

Reducing/Increasing in Government spending.

All these factors would shift the demand curve outwards or inwards depending on the change.

The aggregate supply of an economy is the total value of the output in a market. This means the total output of all the business in the economy. The factors affecting the supply curve includes;

Cost of factors of production

Taxes on the investment and production

Reducing/Increasing Interest rates affecting investments

The market value of goods and services are determined when the aggregate supply and aggregate demand interacts which shown the signs of a stable economy. The government plays a vital role in affecting the demand and supply of goods and services through their fiscal and monetary policies.