Market Equilibration Process Research Paper

Market Equilibration Process Charlene Snowden ECO/561 June 10, 2013 Daniel Rowe Market Equilibration Process Paper The point where a company may offers goods at a price to consumers without generating a shortage or a surplus of goods in known as market equilibrium. Equilibrium is met with the consideration that the products are demanded by the consumers. The economic principles concepts of supply, demand, and market equilibrium are discuss in relationship with business managers. According to McConnell, Brue, and Flynn (2009), demand is a curve that displays different quantity of goods that consumers are willing to purchases goods or
services at a series of possible prices during a time (McConnell, Brue, & Flynn, 2009). The law of demand states that when prices increase the quantity of demand will decrease (Armadeo, 2013). There are determinants that drive demand. These determinants of demand are (1) price of goods, (2) prices of competitors/related goods, (3) income of consumers, (4) preferences or taste of consumers, (5) the consumers’ expectations, and the number of buyers in the market (Armadeo, 2013). According to McConnell, Brue, and Flynn (2009), supply is a curve that displays the various amounts of a good that producers are willing to make available to consumers of each good in a series of possible prices during a time (McConnell, Brue, & Flynn, 2009).
It is understood that when prices increases, the quantity of supplies increases; as prices decreases the quantity of supplies available will decrease as well. The law of supply states the relationship between the quantity of supplies that increases to the quantity of supplies that decreases. The determinants that influences supply are, (1) resources prices for goods, (2) technology, (3) prices of related goods, (4) taxes and subsidies for goods, (5) producers expectations, and (6) the numbers of sellers in the market (Beggs,
2013). The example below illustrates, how price affects surplus and shortages, as price decrease the chances of surplus will decrease (Beggs, 2013).
The symbol P represents price, if the price is higher than P the quantity of supply will be higher than the demand in the market resulting in a surplus (Beggs, 2013). If the demand in the market is higher than supply, a shortage of goods will occur. The point where the demand and supply lines intersect is considered the point of equilibrium price. (Beggs, 2013) Price of goods also affects stock market values of goods. The efficient market theory describes that significant information about the value of a product reflects the stock price of that product (Dimson & Mussavian, 2000). When the value of a product falls it causes the stock value to decrease. Surplus of goods drives down the price of goods, whereas shortages drives up the price of goods finding the point where demand and supply meet is the point of equilibrium or where the seller can break even with cost or gain profits. Understanding how market equilibrium is met is vital for business managers. With the knowledge of market equilibration process business managers can make comprehensive business
decisions.

References Armadeo, K. (2013). Determinants of Demand The Five Factors Affecting Demand Using Examples in the U.S. Economy. Retrieved from http://useconomy.about.com/od/demand/a/Determinants-of-Demand.htm Beggs, J. (2013). Supply and Demand Equilirium. Retrieved from http://economics.about.com/od/market-equalibrium/ss/Supply-And-Demand-Equilibrium_3htm Beggs, J. (2013). The Determinants of Supply. Retrieved from http://economics.about.com/od/supply-and-the-supply-curves/ss/The-Determinants-Of-Supply.htm Dimson, E., And Mussavian, M., 2000. Market Efficiency. The Current State Of Business Disciplines, 3, 959-970. McConnell, C. R., Brue, S. L., & Flynn, S. M. (2009). Economics: Principles, problems, and policies (18th ed.). Boston, MA: McGraw-Hill, Irwin.