Market Forces

Business Dictionary defines Market Forces as "Forces of demand and supply representing the aggregate influence of self-interested buyers and sellers on price and quantity of the goods and services offered in a market." In general, excess demand causes prices and quantity of supply to rise, and excess supply causes them to fall.[1]

British moral philosopher and pioneer of political economy, Adam Smith (1723-1790), cited by many as the father of modern economics, wrote in his books about the ‘invisible hand’ that determined levels of supply, demand, the prices of goods and services, as well as wealth creation and distribution. This ‘invisible hand’ represented market forces – supply and demand – and how if left to its own devices, an economy could thrive. Adam Smith’s influence spread across the world and is often quoted by economists who support the market economy.

 He wrote: “Every individual necessarily labors to render the annual revenue of the society as great as he can. He generally neither 
 intends to promote the public interest, nor knows how much he is promoting it … He intends only for his own gain, and he is in this, as 
 in many other cases, led by an invisible hand to promote an end that was no part of his intention. Nor is it always the worse for 
 a society that it was no part of his intention. By pursuing his own interest he frequently promotes that of society more 
 effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the 
 public good.”

In other words, the invisible hand is essentially a natural phenomenon that drives free markets through competition and scarce resources.

The different types of market forces that influence prices and availability in a market include competition, monopoly, and socialism. Competition occurs when there are multiple suppliers offering the same product or service. A monopoly occurs when one supplier has control over an entire market for a particular product or service. Socialism refers to a type of economy where production and distribution are centralized by the government. In a market economy, the most efficient type of market, these forces interact to determine prices and availability.

See Also