Factors Influence the Equilibrium Price
Bradford University
School of Management
FT MBA 2007/2008
Business Economics (MAN4101M)
Assessed coursework
I certify that this assignment is the result of my own work and does not exceed the word count noted below.
Bradford, 19th November 2007 ______________________________________
Word Count (excluding tables, diagrams and reference): 1750
Market Equilibrium
Introduction:
Market is a place where buyers and sellers come together and a good is offered for sale by producers and purchased by consumer (Blake, 1993). The relation between the demand and supply determines the equilibrium position of a particular good or a service. In this essay we will take a look at the factors that influence the equilibrium position of a good in the market, and the changes occur to the price and output levels of the good.
Equilibrium
"The market equilibrium occurs at the price where consumer's willing to demand is equal to firm's willingness to supply" (Begg and Ward, 2007). Hardwick et al (1990) define "an equilibrium is a state of rest in which no economics forces are being generated to change the situation". For a particular good in the market this state is said to be existed when there is no excess demand and excess supply. In other words demand should be equal to supply .The fig.1 below shows the equilibrium point where the demand curve meets the supply curve.
Factors influence the equilibrium price
1) Change in demand
a) Demand curve shifts to right normally due to an increase in the price of substitute, a decrease in the price of a complement, increase in income for a normal good , or decrease in income for a inferior good, or improvement in Changes in tastes and preferences for the good (Begg and Ward, 2007).
Fig.2 (Blake, 1993) illustrates the equilibrium position (E1) of a good which is at a cost of £P0 when there is trade of Q0 units. But when demand shifts to right, new equilibrium
School of Management
FT MBA 2007/2008
Business Economics (MAN4101M)
Assessed coursework
I certify that this assignment is the result of my own work and does not exceed the word count noted below.
Bradford, 19th November 2007 ______________________________________
Word Count (excluding tables, diagrams and reference): 1750
Market Equilibrium
Introduction:
Market is a place where buyers and sellers come together and a good is offered for sale by producers and purchased by consumer (Blake, 1993). The relation between the demand and supply determines the equilibrium position of a particular good or a service. In this essay we will take a look at the factors that influence the equilibrium position of a good in the market, and the changes occur to the price and output levels of the good.
Equilibrium
"The market equilibrium occurs at the price where consumer's willing to demand is equal to firm's willingness to supply" (Begg and Ward, 2007). Hardwick et al (1990) define "an equilibrium is a state of rest in which no economics forces are being generated to change the situation". For a particular good in the market this state is said to be existed when there is no excess demand and excess supply. In other words demand should be equal to supply .The fig.1 below shows the equilibrium point where the demand curve meets the supply curve.
Factors influence the equilibrium price
1) Change in demand
a) Demand curve shifts to right normally due to an increase in the price of substitute, a decrease in the price of a complement, increase in income for a normal good , or decrease in income for a inferior good, or improvement in Changes in tastes and preferences for the good (Begg and Ward, 2007).
Fig.2 (Blake, 1993) illustrates the equilibrium position (E1) of a good which is at a cost of £P0 when there is trade of Q0 units. But when demand shifts to right, new equilibrium
References: Begg, D and Ward, D. (2007) "Economics for Business", 2nd Edition, Berkshire: McGraw Hill Book Company, pp.74-83. Blake, D. (1993), "A Short Course of Economics", 1st Edition, Berkshire: McGraw Hill Book Company, pp. 5-8. The Economist (2007), "Trading Thin Air", 31/05/2007. Available at http://www.economist.com/specialreports/displaystory.cfm?story_id=9217960 [Accessed 18 Nov.2007].