Market_Equilibrating_Process

Market Equilibrating Process University of Phoenix ECO/561 Frank Kingsland September 7, 2010 Market Equilibrating Process Are Sandra and me in the market for a Lexus' Sandra is my wife. After four years or 48 months, the lease expired on August 15, 2010 on the vehicle that Sandra primarily drives. One would think that with the lease expiring that would put our family in the market for another vehicle. This paper will relate key concepts in this week’s readings to our prior real-world experience. Additionally the paper will include a discussion on the market equilibrating process. This first paragraph will briefly identify the key concepts that will be discussed. Specifically, what are markets, demand, and supply and how each affects market equilibrium' These are all key concepts discussed and learned during the first week of our student reading. According to McConnell, Brue, and Flynn, markets bring together people who want to consume a product or resource and those that want to buy a product or resource (2009). In the case of Sandra and me, we are the consumers or demanders. We were looking to return our 2006 leased Lexus GX470 SUV and to possible lease or buy another vehicle. The seller in our situation is Pohanka Lexus, a car dealership located in Chantilly, VA. Demand is an interesting concept. As noted by McConnell, Brue, and Flynn, “demand is a schedule or a curve that shows the various amounts of a product that consumers are willing and able to purchase at each of a series of possible prices during a specified period of time” (2009). McConnell, Brue, and Flynn also explain that the law of demand, other things equal, is that as price falls, the quantity demand increases and the inverse or negative relationship occurs as price increases, the quantity demanded decreases (2009). What was interesting to observe after this week’s learning was how supply and demand together determine market equilibrium. To examine this affect I will discuss the situation that happened with Sandra and me at the Pohanka Lexus dealership. Sandra and I were turning in our Lexus GX470 during the middle of the month, on August 15th. The Sales Agent informed us that Lexus was having what he called, “The Golden Opportunity Sales Event.” The Sale Agent went on to explain that the event lasted until the end of August and that because we were turning the vehicle in during the event schedule, Sandra and I would be able to take full advantage of the Golden Opportunity Sales Event. According to the Lexus Sales Agent, Sandra and I would receive 1.9% financing if we put down $3500 (Pohanka Lexus, 2010). In this scenario, Sandra and I are individual consumers. In other words, we have the demand. When I looked to what I studied and learned this week by adding the quantities demanded by all consumers at each of the various possible prices, we can get from individual demand to market demand (McConnell, Brue, & Flynn, 2009). So on a larger scale of consumers in the automobile market; I can see where change in demand can take place based on a change of demand schedule, of course realizing a change in demand cannot be confused with a change in quantity demanded. What I realize is that demand is simply not a quantity someone wants to purchase, like two cars and a truck. The next paragraph will take a look at the Lexus side of the equation, specifically the supply side. From the Lexus perspective, the Sales Agent is the supplier. Sandra was interested in a different model than the one she just turned in. She liked the size and look of the Lexus RX 350 as compared to the GX470. According to McConnell, Brue, and Flynn, supply is a schedule or curve showing the various amounts of a product that producers are willing and able to make available for sale at each of a series of possible prices during a specific period (2009). McConnell, Brue, and Flynn go on to explain that as price rises, the quantity supplied rises; as price falls, the quantity supplied falls. This relationship is called the law of supply. A supply schedule tells us that, other things equal, businesses like Lexus will produce and offer for sale more of their product at a high price than at a low price (2009). In our situation, the Lexus Sales Agent was pushing his ability to give us a deal because it was Lexus’s position to move the supply of vehicle the dealership had in inventory during the month of August. The Sales Agent repeatedly informed us that he would be able to make us a better deal during the month of August versus Sandra and I returning in September or October requesting a similar type or better deal. It was very obvious to us and the Sales Agent that price was the key determining factor. According to McConnell, Brue, and Flynn, price is an obstacle from the standpoint of the consumer, who is on the paying end. The higher the price, the less the consumer will buy. However, the supplier, Lexus in our situation, is on the receiving end of the product’s price. To Lexus, price represents revenue, which serves as an incentive to produce and sell their vehicles. The higher the price the greater their incentive and the greater the quantity supplied. It is the responsibility of the Sales Agent to move the supply to the consumers. The next paragraph will close with the discussion of the market equilibrium process. According to About.com, equilibrium occurs when at a specific price, quantity demanded equals quantity supplied. In other words, if there is some price where the numbers of buyers wish to buy is the same as the amount sellers wish to sell, then equilibrium occurs (2010). In the situation of our experience with Lexus, Sandra and I are aware that there are a number of other determining factors that affect the market equilibrium process in the automobile industry. Factors such as competition of other dealers, technology improvements, taxes and subsides, the price of oil and other complementary resources. Other intangible include the producer or supplier’s expectations. For example, in our case, Sandra and I recently noticed that the “Lexus Golden Sales Opportunity Event” was extended until September 7th, 2010. This could be that the dealers did not sale as many automobiles as anticipated and Lexus wanted to extend the event in hopes to sell more of the inventory to consumers. In our case there were two items that caused us not to move forward in the month of August. One, the Lexus Sales Agent, rather intentionally or not, let it be known that Lexus would have another “Golden Opportunity Sales Event” in December 2010. Second, I have the benefit of driving a company owned vehicle for business and personal use, allowing Sandra to drive my car until she decides what model she wants to buy. This way we can save the car note/lease note that we were paying for the Lexus GX470 toward the down payment for the next “Golden Opportunity Sales Event.” For Sandra and me the equilibrium price will be better suited during the month of December 2010. In our personal situation there was no need for the government application of having to set prices. However, recently with regard to the automobile industry, the government did get involved by supplying automobile makers such as General Motors and Chrysler $17.4 billion dollars. Obviously this was done to keep the automobile market at equilibrium to offset what otherwise would have occurred (About.com: US Economy, 2010). For example, if General Motors or Chrysler went out of business there would be a supplier shift from American made cars to foreign made automobiles. The increase in supply of foreign made vehicles would cause the equilibrium price of foreign made vehicles to increase. References About.com:Economics (2010). About.com Website. Retrieved September 7, 2010 from http://economics.about.com/od/supplyanddemand/a/supply_and_demand.htm About.com:US Economy (2010). About.com Website. Retrieved September 7, 2010 from http://useconomy.about.com/od/criticalssues/a/auto_bailout.htm McConnelly, C.R. Brue, S.L. & Flynn, S.M. (2009). Economics: Principles, Problems, and Policies. (18th ed.) McGraw-Hill Company. Pohanka Lexus (2010). Pohanka Lexus Website. Retrieved September 7, 2010 from http://www.pohankalexuschantilly.com/HomePage [pic][pic][pic][pic][pic][pic][pic][pic]