Question

Describe the evolution of factors market, product market, financial markets and financial information market in the economy. Briefly describe the role Financial Markets in a Modern economy.

Answer 1

Evolution of Factor Market:-
In economics, a factor market is a market where factors of production are bought and sold, such as the labor market, the physical capital market, the market for raw materials, and the market for management or entrepreneurial resources.

Firms buy productive resources in return for making factor payments at factor prices. The interaction between product and factor markets involves the principle of derived demand. Derived demand refers to the demand for productive resources, which is derived from the demand for final goods and services or output. For example, if consumer demand for new cars rises, producers will respond by increasing their demand for the productive inputs or resources used to produce new cars.

Production is the transformation of inputs into final products.[1] Firms obtain the inputs (factors of production) in the factor markets. The goods are sold in the products markets. In most respects these markets work in the same manner as each other. Price is determined by the interaction of supply and demand; firms attempt to maximize profits, and factors can influence and change the equilibrium price and quantities bought and sold, and the laws of supply and demand hold.

In perfectly competitive markets firms can "purchase" as many inputs as they need at the market rate. Because labor is the most important factor of production, this article will focus on the competitive labor market, although the analysis applies to all competitive factor markets

Evolution of Product Market:
In economics, the product market is the marketplace in which final goods or services are offered for purchase by businesses and the public sector. Focusing on the sale of finished goods, it does not include trading in raw or other intermediate materials.[1]

Related, but contrasting, terms are financial market and labour market.

Product market regulation is a term for the placing of restrictions upon the operation of the product market. According to an OECD ranking in 1998, English-speaking and Nordic countries had the least-regulated product markets in the OECD.[2] The least-regulated product markets were to be found in:

United Kingdom
Australia
United States
Canada
New Zealand
Denmark
Ireland

Evolution of Financial Markets:-
In ancient times the modern financial system as we know it did not exist. There was no Wall Street on the ancient streets of Egypt where people could speculate on the costs of grain in the coming year, nor was there an exchange where ancient Macedonians could convert the treasures denominated in all the different currencies from all of the different countries they had conquered. In fact there was no equivalent to the modern commodity markets of merchant banks until the formation of the Dojima Rice Exchange in the Edo period of Japan. Yet in American society today, the terms “Wall Street”, the “Federal Reserve”, and “Stock” are ubiquitous. Every hour of every day, somewhere within the rapid information dispensary system known as television, economic data is being evaluated and disseminated to an audience of hungry investors looking to make a profit. This system is a relatively new phenomenon and has redefined the modern economy. It has also evolved far beyond what anyone could have predicted one hundred years ago. Financial markets have turned from being simple exchanges where people actually did shout and yell at each other to make deals, to a complex system of computers where millions of dollars can move electronically at the speed of light. The digital age revolutionized the financial trading system and allowed it to support increasingly abstract and complicated trades and deals. This shift in financial markets from something that the average person could fully partake in, to a system that is too complex for anyone, except those who have spent years studying its inner workings, to comprehend represents a paradigm shift in how society deals with money, assets, and the banking system. At the beginning of the 20th century, financial markets in the United States were relatively simple, and the general populace could understand the majority of events that impacted the system, but now in modern times, due to the invention of computers and the internet, financial markets and the banking system have adopted practices involving trades and swaps too abstract for the average United States citizen to understand. This informational asymmetry between those in the industry, such as brokers and traders, and those constituting the general populace is the root cause of American society’s anger towards the financial system. This anger is best represented by the Occupy Wall Street Movement.

Evolution of Financial Information Market:-
Data such as credit card numbers, credit ratings, account balances, and other monetary facts about a person or organization that are used in billing, credit assessment, loan transactions, and other financial activities. Financial information must be processed in order for business to be conducted, but it must also be carefully handled by businesses in order to ensure security for customers and to avoid the litigation and bad publicity that can stem from negligent or improper use. Importance of Accurate Financial Statements for a Business. Financial statements provide various financial information that investors and creditors use to evaluate a company's financial performance. For any business and for the people who run it, the importance of accurate financial statements cannot be underestimated.