Understanding the Concept of Real World Markets

When the topic of economics is mentioned most people think of world markets – the vast markets that span the globe acting as a coordinate system. But what they don’t realize is that the world economy is not really like a tightly knit knot of isolated markets isolated from each other by high barriers of walls and barbed wire. Rather the world economy as a whole is actually made up of complex webs of interactions among countries that together constitute the world market. In order to understand the functioning of world markets you need to have an understanding of how the economies of various countries interact with each other and with the rest of the world. And this interaction takes place in a number of different economic arenas namely:

Real-world economies exist in a number of different geographic spaces, that in many cases are overlapped in innumerable ways and also operate in different levels (regional, local, sub-regional, national, regional, global). This being the case it is not surprising that the economies of countries that are spread out amongst different segments of the global economy tend to operate at different pace. A perfect example of this phenomenon can be seen in the case of two cities separated by just a single kilometer. In the case of a global economy the cityscape would of course be the entire world, while in the localized example the cityscape would consist of two virtual economies operating at parallel but remote points on the physical map. Economies operating across such large distances would tend to adjust their rate of adjustment to the former city’s velocity of movement, while those that are relatively closer to each other would tend to move in step with each other.

The same principle of non-zero correlation can be seen in real-world world markets too. Although the two kinds of markets do not operate at zero velocity, they do tend to exhibit some fairly high levels of elasticity. For example, in the case of the foreign exchange market commodities like gold tend to be very sensitive to shocks. This being so it is no surprise that the recent global financial crisis led to a widespread tightening of commodity export rates and gold prices, which was also accompanied by the stimulus package that was implemented in the United States. While it seems that the recent Great Recession was the largest since the Great Depression (at least in the eyes of most economists) it is debatable as to the extent to which it was a global event and how much it could have been altered for the better by the policies implemented in the United States.